In choosing a form of business organization for a new enterprise, important

factors include the safety of the home office. T/F

True

Among important factors in choosing a business form, safety of the home office
can be a factor because the owner can be held personally liable for any injuries
that take place on the property.
Mike operates Mike's PennCo Service Station under a franchise granted by
PennCo Corporation. To provide protection for gas station franchisees, Congress
enacted:
the Petroleum Marketing Practices Act
Roy invests in a franchise with Super Soups, Inc. Their agreement may require
Roy to pay a percentage of Super's:
administrative and advertising expenses.
Adam enters into a franchise agreement with Beta Computers, Inc., in which
Beta gives Adam territory that includes Clark County. Beta's grant of additional
franchises in the same territory to others may violate:
an implied covenant of good faith and fair dealing.
A franchise is a form of business organization. T/F
False

A franchise is a contract between a franchisor and franchisee, not a form of

business organization.
Owen does business as Perfect Autos & Trucks under a franchise granted by
Quality Vehicles Corporation. To provide protection for such franchisees,
Congress enacted:
the Automobile Dealers Franchise Act.
Under no circumstances may a franchisor establish an additional franchise in a
territory allotted to a franchisee. T/F
False

Additional franchises can be established where the franchisor grants

nonexclusive rights to franchisees for a specific territory or region.
Mary, a resident of New Jersey, enters into a franchise arrangement in New York
with Over-All Corporation. If the franchise exists chiefly for the sale of products
made by Over-All, the contract may be subject to:
the Uniform Commercial Code
Most states have adopted a model uniform franchise law. T/F
False

State franchise legislation varies although a number of states do have legislation

similar to federal disclosure requirements.
A partnership for a definite term cannot be dissolved before the expiration of the
term.
T/F
False. Even though the partnership is for a definite term, the partners can agree
to terminate the firm before the term ends
Bret is a general partner in Capitol Realty, LLP, a limited liability partnership.
Capitol Realty cannot pay its debts. Bret is personally liable for the debts:
to the extent of his capital contribution.
Only a managing partner has a right to complete information about the conduct of
partnership business. T/F
False. Each partner has the right to receive full and complete information
regarding partnership business.
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Ben is admitted to Consolidated Associates, an existing partnership. A
partnership debt incurred before the date of his admission comes due. Ben is:
only liable for the debt up to the amount of his capital contribution.A newly
admitted partner is liable for existing firm debt only up to his or her capital
contribution, regardless of what the other partners pay.
A limited liability partnership must be formed in compliance with federal law. T/F
False. Limited liability partnerships are formed in compliance with state law.
Jason and Cary operated their car-detailing business for two years, then fell into
disagreement, even though the business was quite successful. They want to
cease doing business with one another. This formal disbanding of a partnership
is called a:
dissolution. The formal disbanding of a partnership is called a dissolution. A
dissociation occurs when a partner ceases to be associated with the carrying on
of partnership business.
Under the Uniform Partnership Act, a general partnership automatically dissolves
on a partner's bankruptcy.
False. Bankruptcy will cause dissociation of the bankrupt partner.
A partner who pursues his or her own interests, violates the fiduciary duties that
he or she owes to the firm
False. A partner may pursue his or her interest without violating fiduciary duties if
adequate disclosure is made.
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Hal signs a contract with Macro Chips, a retail component supplier, on Kappa's
behalf. The contract is binding on:
Hal, Ira, Jill, and Kappa.

As a partner, Hal likely has authority to bind the firm and, because partners have
personal liability for partnership obligations, his partners also.
Charley and Dan form a limited liability partnership for the practice of medicine.
How will the income generated by the LLP be taxed?
Charley and Dan will each report their share of the LLP's profit and loss on their
individual returns.
Jay is considering forms of business organization for Jay's Designs, an
architectural firm. An advantage of a limited liability partnership is that partners
can avoid personal liability for:
partnership obligations that do not involve malpractice on the part of the partner
or anyone the partner supervises.
Limited partnerships originated in:
medieval Europe
The law firm of Smith, Torrez, and Lynd is organized as a limited liability
partnership. Smith, the senior partner, supervises the work of the other two
partners. Lynd is sued for negligence and loses. Liability for the negligence falls
on:
the firm, Lynd and Smith
Unless the partnership agreement states otherwise, a general partner's vote in
management matters is proportionate to his or her capital contribution. T/F
False. If the partnership agreement is silent, partners have equal management
rights.
For most purposes, the law recognizes a partnership as an aggregate of its
members. T/F
False. The majority of states follow the Uniform Partnership Act and treat
partnerships as entities for most purposes.
A partner cannot "wrongfully" dissociate from a partnership. T/F
False. A partner who leaves the firm in breach of the partnership agreement, for
example, has caused a wrongful dissociation.
The two categories of business for which a limited liability partnership (LLP) is
especially attractive are:
professional service firms and family businesses.
Each partner has the right to sell partnership property as if he or she was the
exclusive owner. T/F
False. A partner is not a co-owner of partnership property and has no right to sell
it without partnership authorization.
Jan and Kay are partners in Law Firm, LLP, a limited liability partnership. Jan
supervises Kay, who negligently fails to appear in court on behalf of Mike, a
client. Under the principle of proportionate liability, Jan is liable for:
the amount of any loss attributable to Jan's supervision of Kay.
When a partnership by estoppel is deemed to exist, the acts of the non-partner
are:
binding on the partnership
Quad-State Sales, LLC, is a limited liability company. Rita, a Quad-State
salesperson, is in an accident in South Dakota with Tim, a citizen of Montana.
Tim files a suit against Quad-State in a federal district court. For purposes of
federal court jurisdiction, the citizenship of the firm is the same as the citizenship
of:
Quad-State's members. The state where Quad-State was formed is irrelevant.
Most courts view LLCs as citizens of every state where their members are
citizens.
A limited liability company must have an operating agreement. T/F
False. In many states, an operating agreement is not required.
Sam, Dusty, and Ginger formed an LLC to manufacture dog food. Sam later
rightfully dissociated. Which statement is correct?
If the operating agreement fails to establish a buyout price, under the ULLCA
Sam is entitled to the fair value of his interest.
For federal jurisdictional purposes, a limited liability company can choose to be
treated like a corporation.
False. For federal tax purposes, an LLC can choose to be treated as a
corporation.
Thomas works for Lehigh Industries as a construction foreman. After working for
the company ten years, he decides to start his own construction company. After
seeking legal counsel and speaking with business associates, he decides to form
a LLC. Based upon the advice he receives, Thomas chooses to create a
manager-managed LLC. In this corporate form:
the managers may be members only, nonmembers only, or a combination of
both.
An operating agreement for a limited liability company need not be in writing. T/F
True. Many states do not require an operating agreement and if there is one, it
need not be written
Most states require a limited liability company to have at least two members.
False. Most states allow one-member LLCs.
Aron, a member of Broccoli, LLC, dissociates from the firm. With respect to
events that occurred before this split, dissociation does not terminate Aron's:
Duty of care. Dissociation terminates Aron's duty of loyalty.
In a limited liability company, members must participate in the management of
the company. T/F
False. Members are not required to participate in management. An LLC can be
managed by non-owner managers.
When a member dissociates from an LLC, his or her duty of loyalty continues as
to events that occurred before the dissociation. T/F
False. When a member dissociates, his or her duty of care continues as to
events that occurred before the dissociation.
One of the great benefits of LLCs, which helps promote investment, is the fact
that:
foreign investors are allowed to become LLC members.
A limited liability company's operating agreement must be in writing. T/F
False. In many states an operating agreement is not required, and if one exists, it
need not be written.
Because preferred stock is not equity, it is included among the liabilities of a
business. T/F
False. Stocks (common and preferred) represent ownership (equity) in a
corporation.
Corporations are obligated to return a principal amount per share to each holder
of common stock T/F
False. Bonds (not shares) represent the corporation's borrowing of funds.
Usually, bonds have a maturity date when the principal is paid to the bondholder.
Motor Parts Maker, Inc. (MPM), is a corporation. Norm is an MPM officer. If a
criminal case is brought against MPM and its corporate records are sought, their
production can be refused on the assertion of the U.S. Constitution's Fifth
Amendment privilege against self-incrimination by:
neither MPM nor Norm. While corporations enjoy many of the U.S. Constitution's
protections given to natural persons, corporations do not have the right to plead
the Fifth Amendment's privilege against self-incrimination.
A court will not pierce the corporate veil of a corporation that is merely too "thinly"
capitalized. T/F
False. Thin or under-capitalization is a ground for piercing the corporate veil. This
means the corporation has insufficient capital to meet debts or potential liabilities.
Preferred shares normally have a fixed maturity date on which the firm must pay
them off. T/F
False. Bonds, not shares (stock), have fixed maturity dates.
Ruby Red Corporation has six shareholders, four of whom are members of the
same family. All of Ruby's shareholders agree in writing to operate without
shareholders' meetings. Under the Revised Model Business Corporation Act, this
most likely warrants:
no penalties or sanctions. Ruby Red is a close corporation. Therefore,
shareholders may agree to forego some corporate formalities such as annual
shareholder meetings.
Corporate officers hire the initial corporate directors. T/F
False. If the board of directors are not identified in the articles of incorporation,
the incorporators will elect the directors at the first organizational meeting.
Boutique Corporation would like to change its corporate status to avoid income
taxes at the corporate level. To qualify, the shareholders must not be:
partnerships. Partnerships may not be shareholders of an S Corporation.
A business incorporated in one state has an automatic right to do business in any
other state. T/F
False. A business has an automatic right to do business in the state where it
incorporates. Other states may require the business to obtain a certificate of
authority.
Express powers of a corporation can be found in the law of the state of
incorporation. T/F
True. Express powers may be set forth in the bylaws, articles of incorporation,
and state and federal laws.
Generally, there is a uniform body of national corporate law. T/F
False. Most states base their corporate laws on a model set of laws. However,
the states often do not fully adopt the model laws and differences exist among
states.
Stocks:
A) represent debt.
B) are offered for sale by all corporations.
C) must pay dividends whether or not any profit is earned.
D) all of these choices are correct.
B) are offered for sale by all corporations.
To qualify as a professional corporation, Medical Clinic, P.C.,:
must be a corporation formed by professionals.
Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation.
Probably the most important function of this meeting is:
A) obtaining a charter for Java.
B) drafting Java's articles.
C) adopting Java's bylaws.
D) agreeing on Java's purpose.
C) adopting Java's bylaws.
Few legal qualifications exist for directors. T/F
True
Directors are rarely compensated, but when they are, they cannot set their own
compensation. T/F
False
Individual corporate directors have the ability, as agents of the corporation, to
bind the corporation:
not at all. Individual directors do not have agency power.
Clifton is a director of Dry-Cleaning Corporation. In this capacity, Clifton has a
right of:
participation
Corporate officers govern every corporation. T/F
False. The board of directors is the ultimate authority of a corporation.
Brad is a shareholder of Concert Promotion Corporation. As a shareholder, Brad
can:
vote to amend the articles of incorporation or bylaws.
Corporate shareholders are the ultimate authority in every corporation. T/F
False. The board of directors are the ultimate authority in the corporation,
deciding policies of the corporation.
For shareholders to conduct business at a meeting, a quorum must be present.
Generally, a quorum exists when the shareholders in attendance hold more than:
50% of the outstanding shares.
Shareholders have a right to inspect:
the corporate books and records, but only for a proper purpose.
Sophie and Tiny incorporate their beverage-container business as U-Twist
Products, Inc. The first board of directors may be appointed by the firm's:
incorporators
Davis brings a shareholder's derivative suit against a corporation's directors. If
the suit is successful, the recovered damages will go to:
the corporation's treasury
On the vacant lot adjacent to Lance's lakeside property is an old, dilapidated
sailboat that has obviously been neglected for years. Lance's efforts to find out
who owns the boat are futile. One summer, Lance decides to fix up the boat and
use it. He spends considerable time and money in repairing, painting, and rigging
the boat. The owner of the boat arrives, after the boat is fully restored, and
demands the boat back. By restoring the boat, Lance has most likely acquired
ownership rights in the boat by:
accession. Lance's efforts may have given him ownership rights by accession
because he added value to the property. Lance performed the accession in good
faith, and the accession has increased the value of the boat. A court may thus
hold that ownership rights in the boat passed to Lance.
Many individuals placed personal property in a storage facility offered by the
Gem County Warehouse Association, Inc. (Association). All who stored property
in the building were required by the Association to sign a storage agreement that
included the following provision: "No liability exists for damage or loss to the
stored equipment from the perils of fire." The Association's storage building
burned down, and all the stored property was destroyed. A number of the people
who had stored their property in the building brought an action against the
Association claiming that the fire resulted from its negligence. The Association
claimed that the exculpatory clause in its contract relieved it from any and all
liability, even that caused by negligence. The court most likely held that the
Association was:
liable in negligence for the fire damage. A warehouse company must exercise a
high degree of care or breach its duty and be negligent, but it can limit the dollar
amount of its liability, but not to refuse all liability.
Suppose that Ann finds a World War II--era rifle in the woods. If the rifle is lost
property, what title does Ann take in the rifle?
Title against all but the true owner
One who finds lost property acquires title to it against the entire world, including
the original owner.
False
GR8 Stores, Inc., hires Haul-Way Company, a common carrier, to transport fifty
large-screen HDTVs from San Diego to Phoenix. En route, a pothole causes the
truck to crash, damaging the goods. Liability for the damage most likely rests
with:
Haul-Way only, because this is a common carrier. Because it involves a common
carrier, Haul Way is strictly liable for any damages to GR8 Stores' property.
Augustine attended a seminar held at a Marriott Hotel. The sponsor of the
seminar had rented the banquet room in which the seminar was held and
requested the hotel to place a movable coat rack outside the room, in the public
lobby. Augustine put his coat on the rack before entering the seminar room.
When he tried to find his coat later, he realized that the rack had been moved
down the lobby near an exit. His cashmere coat was missing. Claiming that the
hotel was liable for the loss, Augustine sued the hotel. The most likely outcome is
that the Marriot Hotel is:
not liable for the loss of the coat, because no bailment existed.
Confusion of goods frequently occurs with fungible goods, such as grain or oil,
because:
units of the goods are identical.
Suppose Jan is riding her Harley motorcycle and her hat flies off. She turns
around and spends an hour searching but cannot find it. Muttering to herself, "Oh
well, it was only a hat, I'll get another one", she gets back on her Harley and
drives away. Later Farmer Joe finds the hat in his field. Based on this fact
scenario Jan's hat is most likely ______, and Farmer Joe ______.
abandoned, can keep the hat
Before undergoing surgery that could cause death, Don, a guitarist, talks to his
best friend Freddy. Don says "I hope I make it Freddy. I feel good, but the docs
only give me 50/50 chance. I'm thinking it will all work out and I'll beat this." So
Don gives Freddy the key to his house and asks Freddy to take care of his entire
guitar collection valued at over $150,000. The surgery is successful, and a week
later Don calls Freddy for his guitars. Freddy says there were a gift. After
analyzing the facts, the best answer is:
Don gets the guitars back. Don did not gift the guitars causa mortis or inter vivos;
he merely asked Freddy to watch the guitars while he went through surgery.
A receipt from a parking garage expressly disclaims liability for any damage to
parked cars, regardless of the cause. This receipt is an example of a(n):
exculpatory clause
Someone who finds lost property:
acquires title to it against the whole world except the original owner.
Tara loses a valuable earring at the mall. After looking for the earring, she finally
gives up the search. At this point, the earring becomes:
abandoned property
As an Amazon Prime member, Jose can order something and receive it within 2
days of his online order. Amazon typically uses FedEx to ship their merchandise
to Jose. When Amazon (the bailor) tenders a package to Fedex (the bailee) the
standard of care that FedEx must use with Jose's package is:
strict liability
Venerable Company stores office furniture with Warehouse Storage, Inc. (WSI),
under a contract that limits the warehouse company's liability for lost or damaged
property to $500. Venerable declines the option to pay a higher storage rate for
an increase in the liability limit. The furniture is lost through no fault of WSI. The
loss is most likely suffered by:
Venerable only.
A promise to deliver a gift is legally considered a constructive delivery.
False. A promise to deliver a gift is not sufficient to be considered delivery of a
gift. There must be something else, at the very least, something tangible such as
the keys to a car.
Tom has land worth $200,000 and he intends to donate it to the Wounded
Warriors charity so they can sell it and use the proceeds to help wounded
veterans. Tom executes a deed of transfer and mails the deed to the local
Wounded Veterans office. Was the gift effective, and if so, by what type of
delivery?
Yes, via constructive delivery.
Ansel owns Bar-B Ranch. Ansel's only son Cy owns Double-D Ranch in the
same county. Ansel, who has pre-dementia, gets very drunk one night at the
Rowdy Horse Bar, and writes on a napkin, "Donna, the waitress, gets 90% of the
Bar-B, Signed Ansel." Cy sued claiming the gift was ineffective. Based on your
Analysis:
Cy will prevail because the gift was ineffective, lacking the required element of
donative intent.
Tommy Delancey owned some acreage outside of town on which he had a small
house. He used the property for deer hunting, and kept a deer blind platform on
the property. One day, as he was setting out to the deer blind platform, he
noticed that someone had built a small cabin on his property. Tommy had taken
a Business Law course, and knew that he had to remove trespassers from his
land, or risk losing his property by means of:
adverse possession

Moe, the owner of National Sales Company, stores blank National checks in an
unlocked office drawer. Owen, an employee, forges Moe's signature on one of
the blank checks and indorses it to Payday Loans, Inc. With respect to Payday,
Moe
a. is definitely liable.
b. is definitely not liable.
c. may be liable if the forgery is not obvious.
d. may be liable if the storage of the checks facilitated the forgery.
D. may be liable if the storage of the checks facilitated the forgery
Don writes a check to Eve drawn on Don's account at First Town Bank. Eve
presents the check for payment to the bank, which accepts the check. The bank
is
a. not liable for payment.
b. primarily liable for payment.
c. secondarily liable for payment.
d. simultaneously liable, with Don, for payment.
B. primarily liable for payment
Tina indorses a check. Tina is potentially liable for
a. any amount paid on the check after Tina indorsed it.
b. any amount paid on the check at any time.
c. any amount paid on the check before Tina indorsed it.
d. the amount paid to Tina when she indorsed the check.
A. any amount paid on the check after tina indorsed it
Bob writes a check on his account at County Bank to Dona, a famous singer. The
person claiming to be Dona is an imposter, however, named Eve. Eve indorses
the check to Frank, for whom County Bank cashes the check. Ultimately, the loss
will most likely fall on
a.Bob.
b.County Bank.
c.Dona.
d.Frank
A. bob
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the
note to Lou who, in turn, indorses it to Mona, who then indorses it to Nat, the
present holder.10(a) Nat properly presents the note to Jake for payment, but
Jake dishonors it. With timely notice to the proper parties, Nat may collect
payment on the note from
a. Kim, Lou, or Mona.
b. Kim or Lou only.
c. Mona only.
d. no one.
A. Kim, lou, or mona
10(b) Suppose that Mona pays Nat on the note. With timely notice to the proper
parties, Mona may collect payment on the note from
a. Jake, Kim, or Lou.
b. Jake or Kim only.
c. Lou only.
d. no one.
A. jake, kim, or lou
Sara agrees to cosign a promissory note for Tom to buy a sport utility vehicle.
The note is payable to City Bank. Sara is an accommodation
a.drawee.
b.indorser.
c.maker.
d.signatory.
C. Maker
A mechanic's lien can be enforced to obtain payment for work that adds value to
personal property.
False
A contractor who makes improvements to real property, but who is not paid for
the work, may place a mechanic's lien on the property.
True
A writ of execution is a court order to seize a debtor's property before the entry of
a final judgment in a creditor's lawsuit against the debtor
False
A contract of suretyship must be in writing to be enforceable
False
Some states permit homestead exemptions only if the judgment debtor has a
family
True
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A security interest in goods purchased from a creditor by a debtor attaches if the
creditor gives value to the debtor, and nothing more.
False
For a financing statement to be valid, it must be signed by the creditor
False
1. A secured creditor's right to cash proceeds exists for ten days after receipt
only if the cash is forwarded to the secured party.
False
1. On default, unless the security agreement states otherwise, the secured party
has the right to take possession of the collateral if it can be accomplished without
a breach of the peace.
true
1. After the proper disposition of collateral, if the secured party has not collected
all that the debtor owes, the creditor must accept the deficiency.
False
1. Bankruptcy law has one goal: to free a debtor from creditors' claims.
False
1. Any individual can be a debtor under Chapter 7.
True
1. If an involuntary bankruptcy proceeding is initiated in bad faith, then a court
may award damages for injuries caused to the debtor's reputation.
True
1. In most states, the amount of a debtor's property that is exempt from
distribution on bankruptcy is determined by state, not federal, law.
true
1. Creditors to whom a debtor owes administrative expenses-such as the trustee
and the attorneys involved in the case-enjoy the highest priority among all
unsecured creditors.
False
Friendly Loan Company has a security interest in collateral owned by Best Tool &
Die Company. A security interest in collateral
a. eliminates the need for a financing statement.
b. is enforceable when attachment occurs.
c. is lost when attachment occurs.
d. must be obtained by possession.
B. is enforceable when attachment occurs
General Credit Corporation lends funds to Cathy, a consumer, to apply to the
cost of a sport utility vehicle. To have an enforceable security interest, the value
that General Credit, or any creditor, must give to Cathy, or any debtor, may be
a. a binding commitment to extend credit.
b. any consideration that supports a simple contract.
c. any security given for a preexisting obligation.
d. any of the above.
D. any of the above
Regis Motorcar Company manufactures automobiles that it sells through a
variety of dealers, including Gambino's Autoworld. Gambino sells the cars to both
consumers and businesses A car in the possession of Gambino is probably
a. a consumer good.
b. a fixture.
c. equipment.
d. inventory.
D. inventory
1 Regis Motorcar Company manufactures automobiles that it sells through a
variety of dealers, including Gambino's Autoworld. Gambino sells the cars to both
consumers and businesses.Molly, a consumer, purchases a car for use in her
professional demolition derby tournaments. The car is
a. a consumer good.
b. a fixture.
c. equipment.
d. inventory.
C. equipment
Regis Motorcar Company manufactures automobiles that it sells through a
variety of dealers, including Gambino's Autoworld. Gambino sells the cars to both
consumers and businesses.Ellen, a police officer, purchases a motorcycle for
riding in the mountains on weekends during her spare time. The motorcycle is
a. a consumer good.
b. a fixture.
c. equipment.
d. inventory.
A. a consumer good
Delta Capital Corporation wants to perfect a security interest in a negotiable
instrument owned by Quality Investments, Inc. This can be accomplished
a. only by filing a financing statement.
b. only be taking possession of the instrument.
c. by filing a financing statement or taking possession of the instrument.
d. none of the above.
B. only be taking possession of the instrument
Roscoe uses his cement mixing equipment as collateral for a loan from a
Mississippi bank. The bank properly files a financing statement with the secretary
of state. Roscoe is hired to do some construction work in Alabama and moves
his equipment there to work.After the equipment is moved to Alabama, under the
UCC the Mississippi bank's perfection will remain effective in Alabama for a
period of
a. one month.
b. four months.
c. six months.
d. twelve months.
B. four months
Roscoe uses his cement mixing equipment as collateral for a loan from a
Mississippi bank. The bank properly files a financing statement with the secretary
of state. Roscoe is hired to do some construction work in Alabama and moves
his equipment there to work.If the Mississippi bank wishes to retain its perfected
priority interest longer than the period of time allowed by the UCC, it must
a. file an extension in Mississippi before Roscoe moves to Alabama.
b. file an extension in Mississippi after Roscoe moves to Alabama.
c. perfect its interest in Alabama.
d. repossess the equipment.
C. perfect its interest in Alabama
Gary hires Home Construction Company to add a deck to the back of his house.
When the deck is finished, Gary does not pay Home Construction for the work..
To collect the debt, Home Construction may place on Gary's house
a. a judicial lien.
b. a mechanic's lien.
c. an artisan's lien.
d. none of the above.
B. a mechanics lien
1 Gary hires Home Construction Company to add a deck to the back of his
house. When the deck is finished, Gary does not pay Home Construction for the
work.Home Construction is
a. a guarantor.
b. a lien creditor.
c. a surety.
d. none of the above.
B. a lien creditor
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John borrows money from Patricia. If John defaults, to use attachment as a
remedy Patricia must first
a. commence a suit against John.
b. succeed in a suit against John.
c. be unable to collect the amount of a judgment against John.
d. all of the above.
A. commence a suit against John
Larry borrows money from Joan. If Larry defaults, to use a writ of execution as a
remedy Joan must first
a. commence a suit against Larry.
b. succeed in a suit against Larry.
c. be unable to collect the amount of a judgment against Larry.
d. all of the above.
D. all of the above
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds.. If First National insists that Carl sign the loan application,
making himself personally liable for payment whether or not Beta defaults, Carl
will be
a. a guarantor only.
b. a surety only.
c. a guarantor and a surety.
d. none of the above.
B. a surety only
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds.. If First National insists that Carl sign the loan application,
making himself personally liable for payment only if Beta defaults, Carl will be
a. a guarantor only.
b. a surety only.
c. a guarantor and a surety.
d. none of the above.
A. a guarantor only
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds.Carl is the only salaried employee of Beta. For a guaranty
contract between First National and Carl to be enforceable, it
a. must be in writing under the Guaranty Act.
b. must be in writing under the Statute of Frauds.
c. need not be in writing under the employee-owner exception to the Guaranty
Act.
d. need not be in writing under the main-purpose exception to the Statute of
Frauds.
D. need not be in writing under the main purpose exception to the statute of
frauds
Which of the following may file a petition for a discharge in bankruptcy under
Chapter 7?
a. Frank, an investment adviser
b. Interstate Insurance Company, a corporation
c. Regional Employees Credit Union, a corporation
d. None of the above
A. frank an investment advisor
. Mark is a trustee for a federal bankruptcy court. Mark's duties include
a. collecting a debtor's property.
b. establishing an order of priority for the payment of unsecured creditors.
c. submitting to an examination under oath by the creditors.
d. all of the above.
A. collecting a debtors property
Mackenzie, an agent for Lindsay, signs an agreement with Kirk on Lindsay's
behalf but neglects to tell her that the agreement requires the payment of a
certain tax. The government prosecutes Lindsay for failing to pay the tax. She
is
liable, because notice to Mackenzie is notice to Lindsay.

Jill introduces Kelly to her friends as "my associate." Kelly purports to act as Jill's
agent in several business transactions with those friends. If Jill is liable for Kelly's
actions, it will be under
the doctrine of estoppel.

Diego is a truck driver for Entertainment Supplies Company (ESC). Diego does
exactly what ESC tells him. Diego is
an employee.

A principal owes his or her agent a duty to act in good faith.

True

When an agent fails to perform his or her duties, liability for breach of
contract may result.
True
Clive is a purchasing agent for Double D Ranch with the authority to buy
cat¬tle at a certain auction. After the cattle are bought, the agency
rela¬tionship terminates
automatically

Homer is an officer of Integrity Corporation. With respect to binding Integrity

to contracts, Homer's authority
may be actual or apparent.

Elin, an agent for First Credit Corporation (FC), enters into an unau¬thorized
contract with Great Expectations, Inc. (GE), purportedly on FC's behalf. This
contract will be enforceable if it is ratified by
FC

An agent has the implied authority to do what is reasonably necessary to carry

out express authority.
True

A principal may be liable for the tort of an agent committed within the scope
of the agency or employment.
True

Real Events Promotion Corporation licenses trademarks to Stadium

Souvenirs, Inc., to use in selling caps, sweatshirts, and similar goods. This is
a franchise.

The simplest form of business is a sole proprietorship.

True

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A franchise is a contractual arrangement.
True

Leo buys an exclusive territory in which he is authorized to set up a plant to

make Midwest Dairy, Inc., products. After receiving the formula, Leo begins
making Nice Ice-brand ice cream and other Midwest prod¬ucts. This is
a manufacturing franchise.

Jody owns KuppaJava Kiosks, a sole proprietorship. Jody's liability is

unlimited.

In a limited partnership, a limited partner has full responsibility for the

partnership and for all its debts.
False

Withdrawal from a partnership for a term prematurely does not constitute a

breach of the partnership agreement.
False

In a general partnership, all partners have equal rights in managing the

partnership.
True

Kelly, Lars, and Mona agree to be partners in Neighborhood Delivery Service

(NDS), splitting the profits equally. Kelly contributes 67 percent of the capital.
When NDS is dissolved, its liabilities are greater than its assets. The losses are
paid by
all of the partners in proportion to their shares of the profits.

Megan and Nicole do business as One World Realty. In acting on the firm's
behalf in a deal with Property Acquisition Company, Megan fails to account for
the profit. To her firm, Megan is
liable for breach of the duty of loyalty.

Disadvantage of sole proprietorship is that the owner is liable for losses

of the business
True
One advantage of a sole proprietorship is that the owner is not liable for
the losses of the business. A. True B. False
B. False
Jim organized, and owns and operates, Jim's landscaping service in the
simplest form of business organization. this is A. A franchise B. A limited
liability company C. A partnership D. A sole proprietorship
D. A sole proprietorship
Maury, Neil, and Ogden want to form a limited liability partnership to
manage their Picture This photo studio. Their firm must have A. At least
one general partner and one limited partner B. At least two general
partners C. At least two general partners D. No general Partners
A. At least one general partner and one limited partner
Damages awarded in a shareholder's derivative suit go into the
corporation's treasury. A. True B. False
A. True
Thomas is a "member" of a limited liability company. If the LLC gets
sued for a million dollars, Thomas may be responsible for the entire
million dollar debt. A. True B. False
B. False
Normally, a "quorum" of directors means A. A least a majority of the
directors who are present at the meeting B. At least a majority of the
total number of directors, present or not
B. At least a majority of the total number of directors, present or not 
A sole proprietorship automatically dissolves on the death of the owner.
A. True B. False
A. True
A partnership is a "flow-through" or "pass-through" tax-entity A. True B.
False
A. True
In most or all states, a general partner is jointly and severally liable for
all partnership obligations. A. True B. False
A. True
In a limited liability partnership, a partner can be mostly exempt from
personal liability for partnership obligations. A. True B. False

A. True 
An "operating agreement" of a limited liability company is a "private"
document in the sense that it is not required to be filed. A. True B. False
A. True
Which is likely a simpler form of forming a business. A. General
partnership B. Sub chapter S corporation
A. General Partnership
Which will likely require more formality in forming the business? A.
Limited partnership B. Sole Proprietorship
A. Limited partnership
A shareholder is not an "owner" of a corporation. A. True B. False
B. False
A member is an "owner" of a limited liability company. A. True B. False
B. False (a partner is the owner of a partnership)
A partner is an "owner" of a limited liability company. A. True B. False
B. False (a member is an owner of an LLC)
A manager is always a member of a LLC A. True B. False
B. False
For action to be taken during a shareholders meeting a quorum must be
present. A. True B. False
A. True
Preemptive rights mean that shareholders may bring a derivative suit
against the corporation. A. True B. False
B. False
Double taxation occurs in A. "C" corporation if they declare a dividend
B."S" corporation if they pay out money to shareholders C. Both of the
above
A. "C" corporation if they declare a dividend
Farley and Gregor want to market a new line of fishing gear. To avoid
income taxes at the corporate level, they should form A. a C corporation
B. an S corporation C. a private corporation
B. an S corporation
The "business judgement rule" will protect most directors who act
reasonably, and in good faith, even if their decision turns out to be a bad
business decision A. True B. False
A. True 
Amalgameted, Inc. has 29 directors serving on its board of directors.
What is the least number of directors that must vote for some corporate
action for a legally authorized corporate action to take place under
general rules? A. 15 ( a majority) B. 20 (2/3rds majority) C. 8 (a majority
of a majority) D. 3 (random number)
C. 8 a majority of a majority 
Who elects or appoints the board of directors of a corporation? A. other
board members B. officers C. shareholders D. quorum of all 3
C. shareholders
who elects or appoints the officers of a corporation? A. officers
themselves B. board of directors C. shareholders D. a quorum of all 3
B. Board of directors 
Carlise Corporation is a sub chapter S corporation owned by Frankie
and Gina, each a 50 % shareholder. Carlisle makes $100,000 of taxable
income during the year. A. Carlisle must pay taxes on $100,000 of
taxable income during the year. B. Carlisle pays no tax on $100,000 of
income, but Frankie/Gina pay tax to the extent they receive this income
from Carlisle C. Carlisle pays no tax on $100,000 of income, but
Frankie/Gina pay tax on 50,000 each D. double taxation applies
C. Carlisle pays no tax on $100,000 of income, but Frankie/Gina pay tax
on 50,000 each
which of the following are normally personally liable for the debts of the
business? A. Shareholders B. General partners C. Neither of the above
B. General partners
It is never possible to have a business transaction with a corporation if
you are on the board of directors and have a conflict of interest. A. True
B. False
B. False
Major, fundamental changes in a corporation (such as a merger) must
be voted on and approved by A. officers B. The BOD
C. The shareholders
C. shareholders
John is a corporate officer and director whose job is to evaluate
potential real property purchase for his company. While he is evaluating
possible property deals, he finds one that is so goof he takes it for
himself. A. This is a breach of loyalty or taking of a corporate
opportunity B. Although it is a conflict of interest, it is permissible, as
long as he does not use corporate funds to purchase the property
A. This is a breach of loyalty or taking of a corporate opportunity
Shareholders who own a certain percentage of shares in a company
have the right to inspect the corporate records of the company A. True
B. False
A. true 
Which of the following pays tax at the highest rate on $100,000 of
income? A. Individual B. Partnership C. LLC D. Sub chapter S
corporation
A. individual 
John is a 50 % shareholder in Sixto Craps, a dice-making company that
has elected to be taxed under sub chapter S of the IRS code. If Sixto
earns $100,000 of income, and the corporate tax rate is 10 %, how
much tax would Sixto pay? A. $10,000 B. $1,000 C. $0
C. $0 
if John is in the 20 % individual tax bracket, how much tax would he pay
if Sixto elects to hold all the income for the year and not distribute any?
A. $0 B. $20,000 C. $10,000
C. $10,000
Elmo advertises a reward for the return of his lost dog. Floyd, who does
not know of the reward, finds and returns the dog. Floyd cannot recover
the reward because he A. did not confer a benefit on Elmo by returning
the dog B. did not know of the reward when he found and returned the
dog C. he does not need the money D. returned the dog
B. did not know of the reward when he found and returned the dog
Yvon asks Zach "Do you want to buy my fishing rod"? This is A. a valid
offer B. not a valid offer because the terms are not definite C. not valid
because Zach did not respond
B. not a valid offer because the terms are not definite
New Cell Phone Company offers to buy a laser printer, with a case of
paper and an extra cartridge, from Office Products, Inc. (OPI), for $200.
Paul, OPI’s representative, says, “Okay, but no paper and no extra
cartridge.” Paul has A. accepted the offer B. made a counteroffer
without rejecting the offer C. rejected the offer and made a counteroffer
D. rejected the offer without making a counter offer
C. rejected the offer and made a counteroffer
Can-Do Fix-It Inc., offers Dewey a job as a plumber. No time for
acceptance is specified in the offer. The offer will terminate A. after a
reasonable amount of time B. after a typical work week C. after a usual
month D. never
A. after a reasonable amount of time
Frank offers to "hire" Samantha to act as his agent. They agree on the
deal, but fail to sign a written contract A. No principal agency-
relationship has been formed B. A principal- agency relationship has
been formed even without writing
B. A principal- agency relationship has been formed even without writing
Bill offers to sell a one-of-a-kind Duck Dynasty signed duck call (by Si
Robertson), to Fredricka for $400. Fredricka pays $400, but Bill refuses
to give her the duck call. A. its likely a court would order specific
performances B. its likely a court would simply order money damages
A. its likely a court would order specific performances
Max promises to pay Nan $500 to install a pump. Nan completes the
installation. The act of installing the pump A. is not sufficient
consideration because it is not goods or money B. is not sufficient
consideration if $500 is too much money for the act C. is not sufficient
consideration unless Nan is a licensed professional D. is the
consideration that creates Max's obligation to pay Nan $500
D. is the consideration that creates Max's obligation to pay Nan $500
Quality Aluminum Corporation files a suit against Rite Tool Company,
claiming that the consideration for their contract is inadequate, The
court will most likely not examine the adequacy of the consideration if A.
it is obvious that the consideration is adequate B. Rite Tool asserts that
there is adequate consideration C. something of value passed between
parties D.the consideration is worth more than $100
C. something of value passed between parties
Noni, a seventeen-year-old, signs a contract to sell her car to OK Used
Cars. The next day, Noni tells Metro that she’s decided not to sell the
car. Noni is
A. liable to OK and must sell it for a car of comparable values
B. liable to OK and must sell it her car
C.liable to OK for the amount of its profit on the deal
D. not liable to okay
D. not liable to OK
Jill and Karl contract for the sale of Jill's horse for $1,000. Unknown to
either party, the horse has died. Karl is A. entitled to another horse of
equal value B. not required to pay due to mutual mistake C. not required
to pay due to unilateral mistake D. required to pay because he assumed
the risk that the horse might die
B. not required to pay due to mutual mistake
Hillside Homes, Inc., and Ideal Builders, Inc., enter into a construction
contract that includes six pages of detailed calculations. Later Hillside,
whose project manager compiled the figures, discovers that some
numbers were multiplied incorrectly, but Ideal refuses to make changes.
A court would most likely A. allow the parties to cancel the contract B.
award damages to Hillside for the mistakes C. award damages to Idyll
for the mistakes D. enforce the contact without requiring changes
A. allow the parties to cancel the contract
Jack offers to buy Kris's handheld game-player for $75 Jack is A. an
executor B. an offeree C. a promisee D. an offeror
D. an offeror
An offer can generally be revoked before acceptance A. True B. False
A. True
A counteroffer does not terminate an offer, but continues it A. True B.
False
B. false
Jill introduces Kelly to her friends as "my associate". Kelly purports to
act as Jill's agent in several business transactions with those friends. If
Jill is liable for Kelly's actions, it will be under
a. the doctrine of estoppel
b. the equal dignity rule
c. the fiduciary principle
d. the good faith statute
a. the doctrine of estoppel
The principal can never be liable for the intentional acts of its agent A.
true B. false
B. false
The Statute of Frauds requires all contracts to be in writing A. true B.
false
B. false
Employment Sources, Inc., enters into a contract with Fiona. If Fiona is
a minor, this contract is most likely A. enforceable B. valid C. void D.
voidable
D. voidable
Curt promises to buy illegal copies od CDs and DVDs from Dora, who
promises to deliver on May 1. These promises are most likely A.
enforceable B. valid C. void D. voidable
C. void
Royal Properties, Inc., mails flyers to hundreds of firms, advertising a
building for sale. Standard Manufacturing Company responds by saying,
"We accept your offer." Between Royal and Standard, there is a. a
contract for the sale of the building. b. a contract to consider the offer
before any others c. a contract to negotiate a sale of the building. d. no
contract, as a price list is just an invitation to make an offer by Royal
Property.
d. no contract, as a price list is just an invitation to make an offer by
Royal Property.
Beta corp. send a contract proposal to CartCorp. on August 15, offering
to sell widgets for $30 each, 1000 of them by December 1. Cartcorp.
must accept through sending an acceptance by return mail. CartCorp.
mails the contact back stating that they accept 500 of them at $30, and
mails back on Sept. 1. In the meantime, Beta corp Revokes the offer on
Aug 31 by mail, but is not received until Sept 5. A. there is a contract for
$30,000 B. there is a contract for $15,000 C. There is no contact the
offer was revoked
C. there is no contract because the offer was revoked
Instead, CartCorp. accepts the contract fully, 100 widgets at $30, and
faxes the offer to Beta on August 30, received by Beta on Sept 2. Beta
revoked the offer by mail on Aug 31 by mail but it is not received until
Sept 5. A. there is a contract for $30,000 B. there is no contract
because the offer was revoked before accepted C. there is no contract
because CartCorps acceptance varied the terms
A. there is a contract for $30,000
Jeff offers Kelly $6,00 for her 3 year old laptop computer. Kelly accepts.
If a dispute arises, a court would likely A. enforce the deal B. not
question the adequacy of the consideration C. rewrite the deal after
questioning the adequacy of the consideration D. set aside the deal
after questioning the adequacy of consideration
A. enforce the deal
Utility power company has the right to run its power lines across
Velma's land. This is a A. a license B. an easement C. a profit D. a
tenancy at will
B. an easement 
A court adjudicates Holly mentally incompetent and appoints a
guardian. Holly Subsequently signs a contract to sell her house. the
contract is A. enforceable if Holly comprehended the consequences B.
enforceable if the house was entirely paid for C. void
C. void
Prospective enterprises employs Quinn to buy property for a future
residential development. Quinn secretly buys some of the property and
sells it to PE at a profit. He has breached
a. no duty
b. the duty of accounting
c. the duty of loyalty
d. the duty of notification
c. the duty of loyalty
An officer of a corporation cannot possess the power to bind the
corporation A. true B. flase
A. true
A principal may deny the existence of an agency relationship whenever
it suits his or her purpose A. true B. false
B. false
An agency agreement must be in writing A. true B. false
B. false
An offeree is a person who makes an offer A. true B. false
B. false
Mary purchase a house from John. She finds that John failed to disclose
that the house was located on a contaminated and condemned property
formerly used as a hazardous waste dump a. if Mary did not ask John if
the property was safe, she cannot successfully sue him. B. Mary can
successfully sue John if he failed to disclose those hazardous
conditions whether or not she asked
B. Mary can successfully sue John if he failed to disclose those
hazardous conditions whether or not she asked
A property owner can legally discriminate against prospective tenants
on the basis of gender A. true B. false
B. false
Holly deeds her land to Jake. The deed states "to Jake, for life, then to
Kim" Holly has given Jake A. a fee simple absolute B. a leasehold
estate C. a life estate D. an easement
C. a life estate 
Most crimes must be prosecuted within a certain number of years A.
true B. false
A. true
Corporations cannot be compelled to give testimony that subject them
to criminal liability A. true B. false
B. false
Gail is a private lender who is charged with filing false claims in
bankruptcy proceedings against her debtors. The standard of proof to
find a defendant who has been charged with a crime guilty is A. beyond
all doubt B. beyond a reasonable doubt C. clear and convincing
evidence D. a preponderance of the evidence
B. beyond a reasonable doubt 
An offer to form a bilateral contract is accepting by a promise to perform
A. true B. false
A. true
The holder of a life estate can mortgage the property A. true B. false
B. false
Legally sufficient consideration is something of value in the eyes of the
law A. true B. false
A. true
anticipatory repudiation is a material breach of a contract that may
excuse a breach by the other party A. true B. false
A. true
Ian and Jackie take title to a drive-through Koffee Kiosk in such a way
that if one dies, the other will be the sole owner. Their kiosk is known as
A. co-owner in fee simple B. joint tenants with right of survivor ship C.
tenants for years D. tenants in common
B. joint tenants with right of survivor ship
John contracts for the construction of his house with Acme Builders.
John provides in the contract Acme will have to pay him $100 per day if
his house is not completed by July 1 A. this is likely a liquidated
damages provision that will be enforceable B. this is likely a penalty
clause that will not be enforceable
A. this is likely a liquidated damages provision that will be enforceable
Specific performance is the normal remedy for any breach of contact
case A. true B. false
B. false
The normal remedy for an intentional breach of contract is A.
Compensatory damages only B. Punitive damages only C.
Compensatory and punitive damages D. Liquidated damages
A. Compensatory damages only
Amy contracts to sell a residential duplex to Burt. The contract provides
that if Amy does not close the deal by Sept 15, she must pay Burt one-
half of one of the duplex's sale price. This provision is not enforceable
because it is A. a liquidated damages clause B. A mitigation of damages
clause C a nominal damages clause D. a penalty clause
D. a penalty clause
William is offered a lifetime contract by Unicycle Inc. to be a security
guard. The offer is verbally made only. Unicycle terminates his
employment A. William is likely to have a claim for substantial damages
and specific performance B. William is likely to have a claim for
substantial money damages C. William cannot prevail, because the
terms of the agreement cannot be performed within one year and the
statute of frauds prevent enforceability without writing
B. William is likely to have a claim for substantial money damages
Legally sufficient consideration is something of value in the eyes of the
law A. true B. false
A. true
If one party to a contract breaches it, the other party generally is
excused from performance A. true B. false
A. true
Diners Restaurant signs an agreement with Eagle Bank to borrow
$10,000 at 20% interest rate. Later, the state legislature passes a law
lowering the max permissible rate of interest from 15%. Diners best
argument for avoiding payment to Eagle is A. performance of the
contract is commercially impossible B. the agreement violates the mirror
image rule C. the law has rendered performance of the contract illegal
D. the specific subject matter of the contract has been destoryed
C. the law has rendered performance of the contract illegal
if something remains to be done in a contract it is A. Executory B.
Executed C. Executionary by guillotine
A.executory 
Liquidated damages are generally enforceable, while a penalty
provision in a contract is generally unenforceable A. true B. false
A. true
Courts generally do not grant specific performance of personal service
contracts A. true B. false
A. true
Dian points a gun at Edie, threatening to shoot her unless she takes a
certain file from Great Pharmaceutical Corp. charged with theft, Edie
can successfully claim as a defense A. consent B. duress C.
entrapment D. self-defense

B. duress
Mary who is charged with a crime, claims that Nick,a government agent,
entrapped her. For entrapment to be a valid defense A. Mary must must
not have been predisposed to commit the crime B. Nick must have
pressured Mary into committing the crime C. Nick must have suggested
that the crime be committed D. All of the above
D. all of the above
A "quitclaim deed" is the best guarantee you can get a good title if you
are buying property A. true B. false
B. false
Alabama is "community property" state A. true B. false
B. false
The prosecution in a criminal case need only establish by a
preponderance of the evidence that the defendant committed the crime
A. true B. false
B. false
Under the exclusionary rule, evidence obtained illegally obtained may
not be used in trial A. true B. false
A. true
A tenant is not responsible for the ordinary wear and tear of leased
premise A. true B. false
B. false
Kailin owns a farm near Manhattan, Kansa, with a farmhouse, barn, and
other structures permanently attached. Kailin grows soybeans on the
property. A pond lies within the boundaries. land includes A. the pond,
the soil, and the structures B. the pond and soil only C. the soil only D.
the structures and the soil only
A. the pond, the soil, and the structures
Orin owns Pilot's Landing Office Park. His ownership rights include the
right to sell or give away the property without restriction, as well as the
right to commit waste, if she chooses. Orin's ownership interest is a. a
fee simple absolute b. a leasehold estate c. a life estate d. the power of
eminent domain
a. fee simple absolute 
Even after a tenant sublets leased premises, the tenant may be
obligated to pay rent A. true B. false
A. true
To be convicted of a crime, the state must generally show that the
defendant performed an illegal act (actus reus) and had an evil intent
(mens rea) A. true B. false
A. true
This is the most comfortable car you'll ever ride in. Willie the new car
salesman tells julia. julia buys the car and thinks its very uncomfortable.
A. julia can be successful in suing the car dealer if her state uses
justifiable reliance for fraud B. julia can be successful in suing the car
dealer if her state uses reasonable reliance for fraud C. this is puffery
and there's no liability regardless of the fraud standard
C. this is puffery and there's no liability regardless of the fraud standard
if you send 100,000 faxes out to people without their permission, this
may violate: A. the fair debt collection practices act B. the telephone
consumer protection act C. the ftc telemarketing sales rule D. the fair
credit reporting act
B. the telephone consumer protection act
You buy "Ginsu" knives from a door to door salesman A. you can cancel
the purchase without obligation within a cooling off period B. you may
cancel the purchase but only if you did not sign anything C.. you cannot
cancel the purchase under any circumstances
A. you can cancel the purchase without obligation within a cooling off
period
The Ginsu knives were mailed to you without ever ordering it. An invoice
for $69.95 is included a. you may keep the knives, or return them, but if
you keep them you must pay for them b. you must send the back but
the sending must reimburse for the postage c. you may keep them as a
gift
c. you may keep them as a gift
Jiu Jitsu collection agency calls you, trying to collect the $69.95 and
threatens to sue you a. this is a violation of the fair debt collection
practices act b. this is a violation of the fair credit reporting act c. this is
a violation of no federal law
c. this is a violation of no federal law (consumer debt)
A manager of Ginsu becomes "extra-motivated" to collect this debt. he
begins calling you fourteen times a day, in the middle of the night, and
visits you at work with a sign that says you are a deadbeat who refuses
to pay your debts a. this is a violation of the fair debt collection practices
act b. this is a violation of the fair credit reporting act c. this is a violation
of no federal law
c. this is a violation of no federal law (consumer debt- must be business
debt to be against law)
Now you have opened your own business, and rent an office space
from Ginsu. you fall behind on rent and Ginsu hires Jiu Jitsu collection
agency to collect past due rent. they contact you at work after you ask
them not to, intimidates you, and threatens you. a. this is a violation of
the fair debt collection practices act b. this is a violation of the fair credit
reporting act c. this is a violation of no federal law
a. this is a violation of the fair debt collection practices act
The fair debt collection practices act permits recovery of punitive
damages a. true b. false
b. false
The fair and accurate credit transactions act permits consumers to
receive a free credit report every 12 months a. true b. false
a. true
The max statutory damages allowed under the fair debt collection
practices act is $10,000 a. true b. false
b. false
which of the following is the "cooling off" period under federal law for
door-to-door sales? a. 30 hours b. 30 days c. 30 minutes d. 3 days
d. 3 days
A felony is a crime punishable by imprisonment for less than one year a.
true b. false
b. false
You went out drinking after Mr. Cartwright's exam, and have fourteen
too many drinks, and became very intoxicated. you were arrested for
DUI on the way home a. you can claim intoxication a a defense b. you
deserve it
B. you deserve it
You are threatened by a guy with a knife. You are in a reasonable fear
of receiving serious bodily injury or death a. this is a violation of the fair
debt collection practices act
b. because a gun is a superior weapon to a knife you cannot shoot him
as it would exceed reasonable force
a. this is a violation of the fair debt collection practices act
If you are purchasing real property, you would prefer that the seller
transfer the property with a a. warranty deed b. quitclaim deed
b. quitclaim
Most real property purchased in AL by a husband and a wife are owned
a. jointly, as tenants in common b. jointly, with right of survivor ship c.
jointly, as tenancy by the entireties d. individually, with one-half owned
by each spouse
b. jointly, with right of survivor ship
John agrees to sell his house to Mary, and they shake on it. Suzy is a
witness to their deal. john backs out of the deal. a. Mary will be
successful in suing John for damages b. Mary will be successful in
suing John for specific performances c. Mary will not be successful in
suing John d. Mary can sue Suzy for violation of her miranda rights
c. Mary will not be successful in suing John (must be in writing)
A lawyer is writing up all the paper work to buy the house including the
purchase agreement and sales agreement and the deed. which comes
first a. purchase and sale agreement b. deed
a. purchase and sale agreement 
A tenant can with hold rent for any reason a. true b. false
b. false
Britney leases an apartment from chris for one year. after 2 months she
sublets the premises for 6 months w/o obtaining chris's consent. dina
pays for only 4 months. for the last 2 months britney is a. liable for rent
because dina defaulted b. liable for rent because the sublease lacked
consent c. not liable for the rent because britney does not know the
apartment d. not liable because britney sublet the premise
b. liable for rent because the sublease lacked consent
A property owner can legally discriminate against prospective tenants
based upon religion a. true b. false
b. false
The government can take land for private use a. true b. false
b. false
A deceptive advertisement is one that is false or misleading a. true b.
false
b. false
If the McDonald's coffee cup case occured in AL the judgement would
be reduced by 20% due to comparative negligence a. true b. false
b. false
John has a state law claim against United Corp., a corp. citizen of
another state. More than $90,000 is at issue a. state court and federal
court likely both have concurrent jurisdiction b. federal court likely has
exclusive jurisdiction due to diversity of citizenship c.state court likely
has exclusive jurisdiction d. federal court likely has exclusive jurisdiction
due to federal question
a. state court and federal court likely both have concurrent jurisdiction
A decision from the northern district of AL would be appealed to a. AL
supreme court b. 11th circuit court of appeals c. Al court of civil appeals
d. 5th circuit court of appeals e. two of the above are correct answers
b. 11th circuit court of appeals
Beta Inc and earl employee have their dispute resolved in arbitration.
The arbitrator makes an erroneous finding of fact. this is a ground for a
court to a. review the merits of the dispute b. review the sufficiency of
the evidence c. set aside the award d. none of the above
d. none of the above
Tammy invites alicia to her house to study business law. alicia falls and
injurs herself because of a hidden defect a. tammy will be liable
because alicia is a business invitee b. tammy will not be liable because
alicia is a licensee c. tammy will not be liable because alicia is a
trespasser
b. tammy will not be liable because alicia is a licensee
Fred files a suit against Bham news inc for defamation. actual malice
must be shown for recovery of damages if fred is a. a corporate officer
b. a non-citizen c. a private individual d. a public figure
d. a public figure
Pat comes to you and tells you that she has 21 days to file a responsive
pleading to a complaint. pat was sued in what court a. us district court b.
us court of appeals c. state district court d. state circuit court
a. us district court 
Pat has 30 days to file a responsive pleading. which court was she sued
in a. us district court b. us court of appeals c. state district court d. state
circuit court
d. state circuit court
any lawsuit involving a federal question can originate in federal court a.
true b. false
a. true
to have standing to sue, a party must have been harmed or have been
threatened with harm by the action about which he or she complains a.
true b. false
a. true 
John buys a car from lotsa luck auto. the slaes agreement contains an
arbitration agreement for car disputes. a crazed employee of lotsa luck
attacks john as he drives off in a new car b. john is not required to
arbitrate this matter if he wishes to sue for damages for the attack
b. john is not required to arbitrate this matter if he wishes to sue for
damages for the attack
John is a citizen of TN wishes to file a suit against fredricka a resident of
AL for a state negligence claim. can john file a suit against fredricka in
federal court if he alleges $75,000 in damages a. yes b. no
b. no
Wilco inc was sued in state court and there will be a jury trial. which
court was wilco inc sued in a. state circuit court b. state district court c.
state small claims court d. AL supreme court
a. state circuit court
the 5th circuit court of appeals issued a decision holding that punitive
damages are taxable income in 1983. the 11th circuit of appeals has not
yet addressed that issue. frank lives in AL and has not recovered
punitive damages in a lawsuit he needs to know if they are taxable or
not a. they are not taxable, because the 11th circuit has not yet rules on
it yet b. they are taxable because of ruling in 5th circuit c. we do not
know, 11th circuit has yet to rule on it
c. we do not know, 11th circuit has yet to rule on it
Melody, who lives in AL has a claim against collective collection agency
for violating the federal fair debt collection practices act. can melody file
a suit against collective if he alleges only $50,000 in damages a. yes b.
no
a. yes
Melody's claim is that collective called her three times a day for a week.
the 11th circuit ruled in 1985 that calling more than one time a day was
a violation of the FDCPA. the 5th circuit ruled in 1977 that calling exactly
three times a day for one week was not a violation of FDCPA. a. melody
will win b. melody will lose
a. melody will win
Which of the following is usually a voluntary process a. negotiation b.
mediation c. arbitration d. a&b e. a&c
d. a & b negotiation and mediation 
Phillip is mad about his business law grade and he picks up a bat and
threatens prof cartwright with it, but doesn't hit him with it a. phillip has
committed the intentional tort of battery b. phillip has committed the
intentional tort of assault c. phillip has not committed an intentional tort
but may be liable for negligence
b. phillip has committed the intentional tort of assault
Jurisdiction is the power, or authority of a court to hear a case, but
venue is the most appropriate location for that case to be heard a. true
b. false
a. true
defamation is the publishing of a false statement about another
damaging their reputation a. true b. false
a. true 
If john and suzy ride an elevator together alone, with all the students in
the class, and that comment is false, suzy can be successful in suing
john for defmation a. true b. false
b. false
You are walking in wally world and a Tv set falls on your head. you sue
WM a. you will have to prove that WM was negligent to win b. the
doctrine of res ipsa loquitur will likely allow you to win without proving
negligence
b. the doctrine of res ipsa loquitur will likely allow you to win without
proving negligence
You go to regions park to watch the Bham barons play baseball. you
have been there many times, and you know that baseballs fly out of the
field into the stands regularly. if you are hit by a flying ball a. you cannot
successfully sue because you have assumed the risk b. you cannot
successfully sue because you are contributory c. a lawsuit can prevail if
you show that the batter that hit the foul ball was not paying attention
a. you cannot successfully sue because you have assumed the risk
for the intentional tort of battery to occur, it is enough that a touching be
offensive and it does not need to cause physical pain a. true b. false
a. true
Sally decides to play a practical joke on her friend, janet. sally gets her
boyfriend to dress up like a policeman, and tell janet she is under arrest
for child molestation, and handcuffs her with his handcuffs a. sally
and/or her boyfriend may be liable to janet for tort of slander b.sally
and/or her boyfriend may be liable to janet for intentional infliction of
emotional distress c. sally and/or her boyfriend may be liable for
defamation
b.sally and/or her boyfriend may be liable to janet for intentional infliction
of emotional distress
You have finished the exam but mr. cartwright has loced the doors and
refused to allow you to leave for four hours a. mr. cartwright may be
liable for the intentional tort of assult b. mr. cartwright may be liable for
the intentional tort of false imprisonment c. mr. cartwright will not be
liable unless you can show malice
b. mr. cartwright may be liable for the intentional tort of false
imprisonment
In the liebeck vs mcdonald's case, mcdonald's was held to have
intentionally engaged in conduct that repetitively injured its customers a.
true b. false
a. true
If state circuit court and federal district court each have the ability to
hear a case, what is that called a. general jurisdiction b. limited
jurisdiction c. concurrent jurisdiction d. bilateral venue
c. concurrent jurisdiction
Our system of justice is one of precedence. accordingly our federal
district courts are always required to follow the decisions of a. the 11th
circuit court of appeals b. the 8th circuit court of appeals c. the 5th
circuit court of appeals d. the 9th circuit court of appeals
c. the 5th circuit court of appeals
Voir dire is a. the process of discovering evidence about the other side's
case b. the process of selecting the jury through asking questions c. the
process of filing a lawsuit, based on pleadings d. none of the above
b. the process of selecting the jury through asking questions
Iffy food mart sells hot dogs without an expiration, which violates state
law regulating the safety of meat. If charles cheapo buys his hot dogs
there, eats them and becomes sick and sues, what doctrine would he
use to establish liability on the part of iffy food mart a. trespass to the
person b. assumption of the risk c. res ipsa loquitor d. negligence per se
d. negligence per se
John is involved in a fender bender with franklin. both are citizens of
alabama. john suffers only $8,000 in damages a. john must file a suit in
state district court, because the damages are less than $10,000 b. john
may file suit in state circuit court c. john may file a suit in federal district
court d. none of the above
b. john may file suit in state circuit court
John's damages are actually about $11,000 a. john cannot file suit in
state district court under any circumstances b. john may choose to file
suit in state circuit court or state district court c. neither of the above
b. john may choose to file suit in state circuit court or state district court
In the liebeck vs mcdonald's case, mcdonal's argued that customers
knew it was hot, and that customers knew they could get a third degree
burn from it a. true b. false
b. false
in the liebeck vs mcd case, mcd admitted that the temperature at which
their coffee was served was not fit for human consumption a. true b.
false
a. true
Proof of damages is always required in a defamation per se case a. true
b. false
b. false
Which of the following would allow recovery of compensation damages,
if the suit is successful a. lawsuits alleging negligence b. lawsuit alleging
an intentional tort c. both of the above d. neither of the above
c. both, lawsuits alleging negligence and lawsuit alleging an intentional
tort.
The key element in determining whether negligence was committed is a.
whether it would be fair to hold the defamation responsible b. whether
the defendant acted reasonably under the circumstances c. whether the
defendent
b. whether the defendant acted reasonably under the circumstances
Alabama is a a. contributory negligence state b. comparative negligence
state c. both d. compensatory negligence state
a. contributory negligence state

A self-tender is a company's offer to acquire stock from its own shareholders.

True
False
T
The Bantry Corporation wants to gain control over its nearest competitor,
McMurphy Corporation, and so plans to purchase a substantial number of the
voting shares of Bantry Corporation. This kind of action is called a(n):
tender offer.
appraisal.
takeover.
share exchange.
takeover
If a sale transaction is actually a merger of two corporations, then the purchasing
corporation:
is not responsible for the liabilities of the selling corporation.
is responsible for the liabilities of the selling corporation.
is responsible for fifty percent of the liabilities of the selling corporation.
is responsible for twenty-five percent of the liabilities of the selling corporation.
is responsible for the liabilities of the selling corporation.
Shareholder appraisal rights are normally available in mergers and
consolidations.
True
False
T
Mediterranean Investment Corporation's (MIC) articles of incorporation prohibit a
sale of its assets without a vote of the board of directors. MIC's officers sell some
assets to North Atlantic Company without notice to the board. The officers also
fail to pay MIC's taxes on time, and some MIC funds are not accounted for. The
appropriate remedy is most likely:

a sale of the rest of MIC's assets to its directors and shareholders.

MIC's consolidation or merger with North Atlantic.
MIC's dissolution.
payment of damages to MIC's officers.
MIC's dissolution.
Two brothers, Albert and Raymond Martin, each owned 50 percent of the stock in
Martin's News Service, Inc. Albert and Raymond had difficulty working together
and communicated only through their accountant. For ten years, there were no
corporate meetings, no elections to the board of directors, and no observation of
other corporate formalities. During that time, Raymond operated the business
much as a sole proprietorship, failing to consult Albert on any matter and making
all of the decisions himself. The corporation, however, was a viable concern that
had grown successfully through the years. Albert filed a lawsuit seeking to have
the corporation dissolved. The court most likely:

-dissolved the corporation, because Albert, as a 50 percent shareholder-owner of

the corporation, was entitled to have the corporation dissolved regardless of the
circumstances.
-dissolved the corporation, because the shareholders had been deadlocked for
over ten years, during which time none of the corporate formalities had been
observed.
-refused to dissolve the corporation, because there was no shareholder
agreement to dissolve the corporation.
-refused to dissolve the corporation, because dissension between the
shareholders is not a sufficient basis on which a court can order dissolution.
dissolved the corporation, because the shareholders had been deadlocked for
over ten years, during which time none of the corporate formalities had been
observed.
A transaction in which some or all of the shares of one corporation are
exchanged for some or all of the shares of another corporation, in which both
corporations continue to exist, is known as:
a merger.
a consolidation.
a share exchange.
a free transfer.
a share exchange
Unified Industries, Inc., increases its holdings, making tender offers in many
states. These offers are subject to:
a. federal securities regulations only.
b. in all states, state securities regulations only.
c. in certain states, only state securities regulations.
d. in most states, state and federal securities regulations.
d. in most states, state and federal securities regulations.
Liability based on the conduct of a selling corporation cannot be imposed on a
buying corporation that acquires all or substantially all of the seller's assets.
True
False
F
When a sale of assets amounts to what in effect is a consolidation, the acquiring
corporation does not inherit the selling corporation's liabilities.
True
False
F
A corporate takeover is the process of acquiring control over a corporation by the
purchase of a substantial number of the voting shares of its stock.
True
False
T
Dennis owns shares of HyCorp stock. He is angry that HyCorp has acquired the
assets of LowCorp. He decides to sue the HyCorp directors. Does he have a
case?
Yes, because HyCorp did not get shareholders' approval.
Yes, because Dennis should have been able to exercise appraisal rights.
No, because HyCorp does not need to get shareholders' approval.
No, as long as LowCorp was operating in the same industry.
No, because HyCorp does not need to get shareholders' approval.
The court-appointed person who winds up corporate affairs in a corporate
dissolution is called a:
receiver.
liquidator.
trustee.
corporate guardian.
receiver
The state can bring an action to dissolve a corporation that has failed to pay its
annual taxes.
True
False
T
An offer made by one company directly to the shareholders of another company
to purchase their shares of stock is known as:
a merger offer.
an acquisition offer.
a tender offer.
a takeover offer.
a tender offer.
Shareholder approval is required when a corporation buys all of the assets of
another company:
True
False
F
Once formed, a corporation cannot be dissolved voluntarily.
True
False
F
Candy Corporation has a right of action against Dina. Candy merges with Eats,
Inc., with Eats absorbing Candy. After the merger, Candy's right of action against
Dina can be exercised by:
Candy.
Dina.
Eats.
no one.
Eats
In most cases, merging corporations' officers and employees do not need to
approve the merger.
True
False
T
The term for the legal death of the artificial "person" of Equity Investments, Inc.,
or any other corporation, is:
consolidation.
dissolution.
merger.
winding up.
dissolution
Generally, dissenting shareholders have no recourse if the corporation
consolidates with another corporation.
True
False
F
Partnerships have double taxation with the partnership as a whole paying income
tax on profits and the individual partners paying income tax on profits distributed
to each.
True
False
F
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Like other corporations, Workday Personnel Corporation can expand its
operations through:
a liquidation and distribution of its assets.
a merger.
articles of dissolution.
a purchase of raw materials to be converted into finished goods.
a merger.
A business that is created at will by the owner with unlimited liability and that will
be automatically dissolved on the owner's death is a:
sole proprietorship.
corporation.
partnership.
limited liability corporation.
sole proprietorship.
Salt Corporation wants to acquire or merge with Pepper Corporation. The board
and the shareholders of Pepper are resisting. Salt should:

file a plan of merger with the secretary of state.

file an article of merger with Pepper.
make a tender offer to the shareholders of Pepper.
make a tender offer to the shareholders of Salt.
make a tender offer to the shareholders of Pepper.
Due to the potential consequences of a takeover attempt, the business judgment
rule does not apply.
True
False
F
After a consolidation, there are two or more surviving corporations.
True
False
F
After a merger, a disappearing corporation's preexisting rights disappear.
True
False
F
Partners in a partnership have limited liability.
True
False
F
To create a partnership, the partners must register a charter with the state.
True
False
F
Shareholders of corporations have limited liability.
True
False
T
Once formed, a corporation cannot be dissolved involuntarily.
True
False
F
Which form of business is not a separate entity from the owner?
Sole Proprietorship
Corporation
Limited Liability Company
Limited Liability Partnership
Sole Proprietorship
The main difference between a consolidation and a merger is that after a
consolidation there are at least two surviving corporations.
True
False
F
A short-form merger:
is also known as a parent-subsidiary merger.
can be accomplished without shareholder approval of the corporations involved.
can only be used when a parent corporation owns at least 90 percent of the
outstanding shares of each class of its subsidiary corporation.
all of these answers are correct.
all of these answers are correct.
BigHeads Bobble Head Company purchased all of the assets of its former
competitor, Crazy Craniums Co. BigHeads continued to operate the Crazy
Craniums factory and retained most workers as employees. It phased out the
Crazy Craniums brand and began to sell the products made in the Crazy factory
under the BigHeads brand. Based on this description, BigHeads is likely:
not responsible for Crazy Cranium's liabilities.
fully responsible for Crazy Cranium's liabilities.
in violation of the NLRA.
guilty of an illegal restraint of trade.
not responsible for Crazy Cranium's liabilities.
A short-form merger can be used whenever a parent owns more than 10 percent
of the stock of its subsidiary.
True
False
F
When choosing a form of business organization, most business persons consider
which of the following factors?
Liability of the owners
Tax considerations
The need for capital
All of these
All of these
Which of the following usually requires shareholder approval?
Mergers
Amending the articles of incorporation
Dissolution of the corporation
All of these answers are correct
All of these answers are correct
Owners of which form(s) of business have unlimited liability for debts of the
business?
-Sole proprietorship
-Corporations
-Partnership
-Sole proprietorship and partnership
Sole proprietorship and partnership
Cherry Grove Apartments, Inc., merges with Dutch Elm Realty, Inc. Only Dutch
Elm remains. Cherry Grove owed money to Eager Beaver Repair Service and
other creditors. After the merger, Dutch Elm must pay:
-all of Cherry Grove's debts.
-half of Cherry Grove's debts.
-none of Cherry Grove's debts.
-only debts that Cherry Grove incurred after a merger was proposed.
all of Cherry Grove's debts.
A merger is a contractual and statutory process in which:
two or more corporations join to become a completely new corporation.
some or all of the shares of one corporation are exchanged for some or all of the
shares of another corporation.
one corporation acquires all of the assets and liabilities of another corporation.
none of these choices.
one corporation acquires all of the assets and liabilities of another corporation.
Shipperly Shipping Company, Inc. wants to takeover Anchors Away, Inc., a
commercial docking facility. To do so, they offer to buy the stock directly from
Anchors Away shareholders for a premium over their current market value. This
is:
tender offer.
appraisal.
short-from merger.
share exchange.
tender offer.
Standard Business Corporation can be compelled to dissolve by:
its creditors only.
itself through its shareholders and directors only.
itself through its shareholders and directors or the state.
the state only.
itself through its shareholders and directors or the state.
In some circumstances, a shareholder may petition a court to have the
corporation dissolved.
True
False
T
A state court can involuntarily dissolve a corporation under certain
circumstances, such as:
-when the corporation has committed fraud or misrepresentation during
incorporation.
-when the corporation has failed to make an adequate profit.
-when the corporation has lent funds to other investors.
-when the corporation has refused to engage in ultra vires acts.
when the corporation has committed fraud or misrepresentation during
incorporation.
The corporation being acquired in a takeover is called the:
tendered corporation.
terminated corporation.
takeover corporation.
target corporation.
target corporation
Dissolution can be brought about voluntarily by the directors and shareholders of
a corporation.
True
False
T
Partnership interests may be assigned with the assignee taking full rights of the
assigning partner.
True
False
F
Which form of business may have a perpetual existence?
Sole proprietorship
Corporation
Partnership
Limited partnership
corporation
Holly's Hotels, Inc. is a public company with multinational chain of hotels which is
highly successful. A competitor has been trying to conduct a takeover, so Holly's
Hotels, Inc. arranges to sell its best and most profitable hotel to a third hotel
chain. This kind of defense to a takeover is called the:
poison pill defense.
pac-man defense.
crown jewel defense.
white knight defense.
crown jewel defense
Giant Lift Corporation purchases all of the assets of Heavy Hydraulics
Corporation. With respect to Heavy Hydraulics's liabilities, Giant Lift is:
automatically responsible.
not responsible under any circumstances.
responsible if Heavy Hydraulics is a competitor of Giant Lift.
responsible if the sale is actually a merger or consolidation.
responsible if the sale is actually a merger or consolidation
Lori Ann Nilsson, in the course of her employment as a machine operator, was
injured by a pipe and tube cutoff machine that had been manufactured and sold
by Continental Machine Co. prior to 1978. In 1986, Fredor Corp. purchased all of
the production assets of Continental, including the pipe and tube machine
product line, and formed Continental Machine Manufacturing Co. (CMM). The
assets purchased from Continental were transferred to CMM, and CMM's product
lines were the same as Continental's had been. The shareholders of Continental
did not become shareholders, officers, or employees of Fredor or CMM. Most of
the employees of Continental became employees of CMM, however. There was
no evidence that the transaction was undertaken for a fraudulent purpose, nor
did Fredor or CMM agree to assume Continental's liabilities. After the sale of
assets, Continental continued to exist, but it had no productive assets.
Continental continued to own the building in which the assets were located and
leased that same building to CMM. Nilsson brought a product liability suit against
CMM. CMM claimed that it had merely purchased Continental's assets and had
not assumed its liabilities. The court most likely held that CMM was:
-liable for Nilsson's injuries, because CMM's purchase of Continental's assets did
not constitute a de facto merger.
-liable for Nilsson's injuries, because CMM's purchase of Continental's assets
constituted a de facto merger.
-not liable for Nilsson's injuries, because there was a de jure corporation.
-not liable for Nilsson's injuries, because there was no continuity of ownership
between Continental and CMM.
not liable for Nilsson's injuries, because there was no continuity of ownership
between Continental and CMM.
A tender offer can be conditioned on the receipt of a specified number of
outstanding shares by a certain date.
True
False
T
After a consolidation, the new corporation inherits all of the consolidating
corporations' obligations.
True
False
T
Federal securities laws strictly control the terms, duration, and circumstances
under which most tender offers are made.
True
False
T
The legal combination of two or more corporations in such a way that only one of
the corporations continues to exist is a:
merger.
consolidation (by the traditional definition).
a purchase of assets.
a share exchange.
merger
A court can dissolve a corporation for mismanagement.
True
False
T
Only a board of directors can initiate the dissolution of a corporation.
True
False
F
Which form of business has "double taxation"?
Sole proprietorship
Corporation
Partnership
Limited Liability Company
corporation
Appraisal rights will be available:
any time a shareholder has a question about an asset's value.
only when federal law provides for them.
only when a state statute provides for them.
always—there is a common law right to appraisal rights.
only when a state statute provides for them.
Jen files a suit against Kopper Kettle Company. While the suit is pending, Kopper
Kettle merges with Luminous Pans, Inc., with Luminous absorbing Kopper Kettle.
Now, liability in the suit, if any, rests with:
Jen.
Kopper Kettle.
Luminous.
no one.
Luminous
In a merger, only the surviving corporation's shareholders are entitled to
appraisal rights.
True
False
F
In a consolidation, the consolidating corporations become subsidiaries of the new
corporation.
True
False
F
Corporations must pay organizational fees, annual license fees, and file annual
reports.
True
False
T
A shareholder who disapproves of a merger or consolidation but is outvoted by
other shareholders:
-is nevertheless legally forced to become an unwilling shareholder in the new
corporation.
-has the statutory right to be paid the fair value of the shares the shareholder
held on the date of the merger or consolidation.
-can legally prevent the merger or consolidation from taking place.
-can sue the other shareholders for breach of contract.
has the statutory right to be paid the fair value of the shares the shareholder held
on the date of the merger or consolidation.
Winding up a corporation's affairs can only be performed under court supervision.
True
False
F
Dissolution is the legal death of the artificial "person" of a corporation.
True
False
T
Petro Corporation combines its assets and debts with those of Quality Refining
Company to form Royal Oil, Inc. Royal Oil assumes:
all of Petro's and Quality's debts.
half of Petro's and Quality's debts.
none of Petro's and Quality's debts.
only debts that Petro and Quality incurred after a combination was proposed.
all of Petro's and Quality's debts.
To defend against a takeover attempt, a company may give its shareholders the
right to buy additional shares at low prices.
True
False
T
Of these descriptions of corporate dissolution, the best and most complete is:
-final reorganization of the corporation.
-legal death of the artificial "person" of the corporation.
-distribution of corporate assets among creditors.
-all of these choices.
legal death of the artificial "person" of the corporation.
Petro Corporation combines its assets and debts with those of Quality Refining
Company to form Royal Oil, Inc. The formation of Royal Oil is:
a consolidation.
a dissolution.
a liquidation.
a merger.
a consolidation.
Eagle Financial Corporation merges with First Bank Corporation, with Eagle
Financial absorbing First Bank. After the merger:
a different, new corporation is the surviving corporation.
Eagle Financial and First Bank are both surviving corporations.
Eagle Financial is the surviving corporation.
First Bank is the surviving corporation.
Eagle Financial is the surviving corporation.
Java Corporation wants to purchase all of the assets of Kaffeen Corporation.
Loni is a Kaffeen shareholder. The approval of Loni and other Kaffeen
shareholders is necessary:
in all circumstances.
in no circumstances.
only if Kaffeen will be paid with unauthorized, unissued stock.
only if Java assumes Kaffeen's liabilities as part of the deal.
in all circumstances.
A limited liability company is created by agreement of the member-owners and
filing articles of organization with the state.
True
False
T
The legal death of the artificial person of the corporation is called:
winding up.
termination.
dissolution.
execution.
dissolution.
In a short-form merger, neither corporation's shareholders need to approve the
merger.
True
False
T
Like the termination of a partnership, the termination of a corporate life has two
phases:
dissolution and winding up.
consolidation and termination.
resolution and dissolution.
acceptance and winding up.
dissolution and winding up.
Voluntary dissolution of a corporation can be brought about:
by the shareholders and corporate officers.
following the federal standards for the required procedures.
either by a two-thirds majority vote of the shareholders to initiate dissolution
proceedings or by a proposal of the corporate officers that is submitted to the
board of directors at a board meeting.
none of these choices.
none of these choices.
When a corporation is dissolved voluntarily, the corporation must file articles of
dissolution with the state.
True
False
T
The legal combination in which two or more corporations combine in such a way
that each corporation ceases to exist and a new one emerges is a:
merger.
consolidation (by the traditional definition).
a purchase of assets.
a share exchange.
consolidation (by the traditional definition).
Jeannie's Garden Equipment, Inc. is a corporation that sells gardening tools. The
board of directors makes a proposal for voluntary dissolution of the company and
submits it to the shareholders at a shareholders' meeting. The proposal is
approved. A court would likely hold that:
-the shareholders need not be consulted for voluntary dissolution of the
corporation to take place.
-this was not a proper and legal method of voluntary dissolution of the
corporation.
-a corporation can only be dissolved by the shareholders' unanimous decision to
start the proceedings.
-this was a proper and legal method of voluntary dissolution of the corporation.
this was a proper and legal method of voluntary dissolution of the corporation.
Eye Appliance Company and Fast Courier, Inc., wish to combine all of their
assets, stock, and personnel into a new firm to be called Glasses2Go
Corporation. This is:
a consolidation.
a merger.
an exchange of assets.
a takeover.
a consolidation.
Appraisal rights are often the only recourse for shareholders who object to a
parent-subsidiary merger.
True
False
T
A type of business entity which limits a partner's liability for the acts committed by
other partners is a:
a general partnership.
a limited partnership.
a limited liability partnership.
a limited liability company.
a limited liability partnership.
After a consolidation, the new corporation inherits all of the consolidating
corporations' rights.
True
False
T
In which of the following situations would a corporation that purchases the assets
of another corporation become liable for the liabilities of the selling corporation?
-When the sale is neither a merger nor a consolidation
-When the purchaser discontinues the sellers business
-When the purchasing corporation impliedly assumes the sellers liability
-When the sale does not have any fraud to escape liability
When the purchasing corporation impliedly assumes the sellers liability
When a sale of assets amounts to what in effect is a merger, the acquiring
corporation inherits the selling corporation's liabilities.
True
False
T
Petro Corporation combines its assets and debts with those of Quality Refining
Company to form Royal Oil, Inc. Royal Oil acquires:
all of Petro's and Quality's assets.
half of Petro's and Quality's assets.
none of Petro's and Quality's assets.
only assets that Petro and Quality acquired after a combination was proposed.
all of Petro's and Quality's assets.
Cherry Grove Apartments, Inc., merges with Dutch Elm Realty, Inc. Only Dutch
Elm remains. Cherry Grove held rights in certain real property. After the merger,
Dutch Elm acquires the rights:
automatically.
only after completing certain additional statutory procedures.
only Cherry Grove's former shareholders expressly approve.
only if the acquisition is a specified result of the merger.
automatically.
Motor Parts Corporation offers to buy the stock of NASCAR Products
Corporation (NPC). NPC's directors oppose the offer. Orin and other NPC
shareholders file a suit, alleging a breach of the directors' fiduciary duties. Most
likely, the court will:
-apply the business judgment rule to analyze the directors' acts.
-dismiss the suit as a non-judicial dispute over "fair value."
-evaluate the terms of the deal on the basis of antitrust law.
-order that the shareholders be paid a "premium" for their stock.
apply the business judgment rule to analyze the directors' acts.
Like other corporations, Beauty Supplies Corporation can extend its operations
through:
a consolidation.
a dissolution.
a termination.
a winding up.
a consolidation.
Shareholders dissenting to a merger have a statutory right to be paid "fair value"
for shares they held on the merger date.
True
False
T
General partners in a limited partnerships have:
-unlimited liability for debts of the partnership.
-limited liability for debts of the partnership.
-no voice in management of the partnership.
-the same management rights and liabilities as limited partners.
unlimited liability for debts of the partnership.
TNL Corporation is a large holding company that owns all of the shares of the
Red Rose Manufacturing Co. In this case, Red Rose Manufacturing is the:
surviving corporation.
merged corporation.
parent corporation.
subsidiary corporation.
subsidiary corporation
When dissolution takes place by voluntary action, the shareholders are
responsible for winding up the affairs of the corporation.
True
False
F
In a share exchange, neither corporation continues to exist.
True
False
F
Dissolution is a method by which a corporation can extend its operations.
True
False
F
Generally, when one corporation acquires all or substantially all of another
corporation's assets by direct purchase:
the acquiring corporation changes its legal entity.
the acquiring corporation is required to obtain shareholder approval.
shareholder approval of the acquiring corporation is not required.
None of these choices is correct.
shareholder approval of the acquiring corporation is not required.
Courts do not apply the business judgment rule to analyze whether the directors
acted reasonably in resisting a takeover attempt.
True
False
T

Even if an employer's actions do not violate any provisions in an employment

contract or statute, the employer may still be subject to liability under a:
statutory law theory.
common law doctrine, such as a tort theory or agency.
criminal law theory.
civil law theory.
common law doctrine, such as a tort theory or agency.
A court would most likely find an exception to the employment-at-will doctrine if
an employee was fired:
in retaliation for reporting that her employer was illegally dumping toxic chemicals
into a river.
for sending the wrong package to an important customer.
because he broke an expensive piece of equipment, shutting down the factory for
several hours.
all of these choices.
for sending the wrong package to an important customer
The Fair Labor Standards Act prohibits:
working times and hours for persons between the ages of sixteen and eighteen.
all child labor.
oppressive child labor.
difficult child labor.
oppressive child labor.
Alex is an employee of Bigg Corporation. To help pay for employees' loss of
income on retirement, contributions are required by law to be paid by:
Alex and Bigg.
Alex only.
Bigg only.
neither Alex nor Bigg.
neither Alex nor Bigg.
Jane is the Chief Financial Officer of Stadt Corporation. Jane takes a two-month
leave when she adopts a baby. When Jane is ready to return to work at the end
of her two-month leave, Stadt Corporation refuses to allow her to return to work.
Jane tells Stadt Corporation they must allow her to return because her leave was
taken under the Family Medical and Leave Act. Is Jane correct?
No, Stadt Corporation does not have to allow Jane to return because the Family
Medical and Leave Act allows the employer to avoid reinstating a key employee.
Yes, Stadt Corporation must allow Jane to return because she was permitted to
leave under the Family Medical and Leave Act based on these circumstances.
No, Stadt Corporation does not have to allow Jane to return because you are not
permitted more than a one-month leave under the Family Medical and Leave Act.
No, Stadt Corporation does not have to allow Jane to return because adopting a
child would not qualify as a leave under the Family Medical and Leave Act.
No, Stadt Corporation does not have to allow Jane to return because the Family
Medical and Leave Act allows the employer to avoid reinstating a key employee.
An employee may file an action for wrongful discharge against an employer who
discharges the employee in violation of an employment contract.
True
False
True
Leah is an employee of Mega Corporation. To help pay for Leah's medical costs
on retirement, contributions are required by law to be paid by:
Leah and Mega.
Leah only.
Mega only.
neither Leah nor Mega.
Leah and Mega.
Nina works as an employee for Overland Sales, Inc. To protect Nina and other
employees from arbitrary discharge, courts have created exceptions to the
employment-at-will doctrine based on:
an implied contract theory only.
a public policy theory only.
implied contract and public policy theories.
neither implied contract nor public policy theories.
implied contract and public policy theories.
The law regulating private pension funds is:
ERISA.
CERCLA.
the Social Security Act.
UNESCO.
ERISA.
Brandon's mother, Heather, has a stroke and needs nearly constant supervision.
Brandon asks his company for leave and asks that the leave be covered by the
Family and Medical Leave Act. What must Brandon's company do?
Deny Brandon's leave because only government employees are entitled to leave
under the FMLA.
Grant Brandon's leave under the FMLA and pay him during his leave.
Deny Brandon's leave because care of a parent is not a qualifying event under
the FMLA.
Grant Brandon's leave under the FMLA, but this leave may be unpaid.
Grant Brandon's leave under the FMLA, but this leave may be unpaid.
Federal and state governments participate in insurance programs designed to
protect employees and their families by covering the financial impact of:
retirement.
disability.
hospitalization.
all of these choices.
all of these choices.
The Family and Medical Leave Act (FMLA) requires:
employers that have 50 or more employees to provide employees with up to 12
weeks of unpaid family or medical leave during any 12-month period.
employers that have 100 or more employees to provide employees with up to six
weeks of unpaid family or medical leave during any 12-month period.
employers that have 150 or more employees to provide employees with up to
nine weeks of unpaid family or medical leave during any 12-month period.
none of these choices.
employers that have 50 or more employees to provide employees with up to 12
weeks of unpaid family or medical leave during any 12-month period.
As a condition of his employment, Earl Angus lived with his family in a mobile
home owned by his employer, Deffenbaugh Industries. Deffenbaugh purchased
the mobile home and located it on the grounds of its plant so that Angus could
maintain "a constant presence on the premises." Angus ordinarily worked out of
an office located in a different building, but the mobile home had a telephone so
that Angus could contact drivers and customers as needed. One day, Angus
returned to the mobile home for dinner and also to await the arrival of a company
truck on company business. Fifteen minutes later, a tornado struck, killing
Angus's wife and severely injuring him and his daughter. Angus filed a workers'
compensation claim against Deffenbaugh, alleging that his injuries arose "out of
his employment." Deffenbaugh argued that Angus was not entitled to recover
workers' compensation because he was not working but was eating dinner when
the tornado struck. The court most likely held that Angus could:
not recover under workers' compensation laws, because eating with his family
was not in the scope of his employment.
recover under workers' compensation laws, because at the time of his injuries he
was performing the duties of his job, which required his continual presence on
the employer's premises.
not recover under workers' compensation laws, because the tornado was beyond
the employer's control and caused injuries of a kind that were not anticipated by
the employer or its insurer.
recover under workers' compensation laws, because any injuries occurring on
the employer's premises are automatically covered.
recover under workers' compensation laws, because at the time of his injuries he
was performing the duties of his job, which required his continual presence on
the employer's premises.
The employment-at-will doctrine is still in widespread use.
True
False
True
Livia takes temporary family leave from her job at Meatpackers Corporation to
care for a new baby. On Livia's return from the leave, Meatpackers must:
do nothing.
restore Livia to her original position.
promote Livia to the status of a key employee.
reimburse Livia for her expenses while on leave.
restore Livia to her original position.
Supervisors may be subject to personal liability for violations of the Family and
Medical Leave Act of 1993.
True
False
True
An employer who violates the FMLA may be held liable for damages to
compensate an employee for:
lost benefits, denied compensation, and actual monetary losses up to an amount
equivalent to the employee's wages for 12 weeks.
actual monetary losses up to an amount equivalent to the employee's wages for
12 months.
at least 50% of the employee's lost wages.
denied compensation equivalent to the employee's wages for six months.
lost benefits, denied compensation, and actual monetary losses up to an amount
equivalent to the employee's wages for 12 weeks.
Holly takes temporary leave from her job at Interstate Assembly Company to
care for her new baby. When she attempts to return to work, Interstate refuses to
reinstate her. Under the Family and Medical Leave Act, Holly may be entitled to:
damages only.
damages or job reinstatement only.
double damages, job reinstatement, a promotion, and more.
none of the choices.
double damages, job reinstatement, a promotion, and more.
The federal government began to regulate wages and working hours of
employees:
in the 1930s.
in the late 1700s.
immediately after the First World War.
in the decade following the Civil War.
in the 1930s.
Target Stores hires store security officers (SSOs) to observe, apprehend, and
arrest suspected shoplifters. SSOs are not armed, but they carry handcuffs and
may use force, in self-defense, if necessary to carry out their job duties. Target
views good health and physical condition as important SSO job skills. To
determine whether applicants for SSO positions are healthy and will remain
healthy in the future, Target uses a genetic test that it calls QualGento screen for
predispositions to debilitating diseases. All job applicants must take the test as a
condition of employment. Sibi Soroka found the test objectionable and brought a
lawsuit against Target challenging the test as a violation of his privacy rights.
Target claimed that the test was a good indicator of suitability for the SSO job but
did not show a clear connection between success on the test and success on the
job. The court most likely held that the test:
did not violate applicants' privacy rights, because the job of SSO required a high
level of physical health, and the test was effective at determining the suitability of
applicants.
violated applicants' privacy rights. Target did not have a compelling, job-related
interest that justified invading the privacy of applicants.
did not violate applicants' privacy rights, because as applicants, they were not
employees and were not entitled to employee benefits.
violated applicants' privacy rights, because privacy rights are found in the
Constitution and are therefore absolute.
violated applicants' privacy rights. Target did not have a compelling, job-related
interest that justified invading the privacy of applicants.
Geno's Italiano Ristorantes, Inc., employs three hundred workers at four
locations in two states. Under federal law, Geno's must provide each employee,
during any twelve-month period, family or medical leave of up to twelve:
years.
days.
months.
weeks.
weeks.
New Co, a mega retailer with 1000 stores across the U.S., has been
experiencing high theft rates at their largest volume store. The Corporate Office
has directed the Store's Management to wire the bathrooms for sound for 90
days to determine if the thefts are taking place there and by whom. They have
also directed them to not notify the employees or place signage anywhere, so the
employees and customers will remain unaware. Is this a permissible practice?
No, because the Management team was directed by their Corporate Office.
Yes, because every employer has a right to prevent theft and losses.
Yes, because the practice is only temporary.
No, because it is an impermissible invasion of privacy.
No, because it is an impermissible invasion of privacy.
Flem is an employee of Glo Goods, Inc. Flem reports to state officials that Glo is
illegally shipping unsafe goods to unsuspecting customers. When Glo learns of
Flem's report, Glo fires him. He successfully sues Glo for wrongful discharge.
With respect to the employment-at-will doctrine, this is:
an exception based on tort theory.
an example of the doctrine.
an exception based on public policy.
an exception based on contract theory.
an exception based on public policy.
Certain employees are exempted from the overtime provisions of the Fair Labor
Standards Act, including:
executive employees.
administrative employees.
outside salespersons.
all of these choices.
all of these choices.
State statutes establishing an administrative procedure for compensating
workers' injuries that arise out of—or in the course of—their employment,
regardless of fault, are:
workers' labor laws.
employees' pay laws.
workers' compensation laws.
employees' compensation laws.
workers' compensation laws.
Lena offers Miguel a job, representing falsely that it will be long term. In reliance,
Miguel takes the job but is laid off shortly thereafter and successfully sues Lena
for fraud. With respect to the employment-at-will doctrine, this is:
an exception based on tort theory.
an example of the doctrine.
an exception based on public policy.
an exception based on contract theory.
an exception based on tort theory.
The FMLA requires employers who have fifty or more employees to provide
employees with up to twelve weeks of unpaid family or medical leave, provided
the employee has worked for the employer for at least:
thirty days.
sixty days.
one year.
none of these choices.
one year.
No employee has a reasonable expectation of privacy in the workplace.
True
False
False
Employers may waive the overtime requirements of the Fair Labor Standards
Act.
True
False
False
Leo works as an employee for Maxim Corporation, a private employer. Maxim
announces that it will start random drug testing of its employees. To resist this
policy, Leo may look for protection under:
a federal administrative agency rule.
a state constitution or statute.
the U.S. Constitution.
none of the choices.
a state constitution or statute.
The Fair Labor Standards Act (FLSA) does not:
extend minimum-wage rules to employees in covered industries.
require overtime payment after an employee works forty hours in one week.
restrict the power of federal courts to issue injunctions against unions.
prohibit oppressive child labor.
restrict the power of federal courts to issue injunctions against unions.
Robert Adams worked as a delivery truck driver for George W. Cochran & Co.
Adams persistently refused to drive a truck that lacked a legally required
inspection sticker because he knew that if he was caught driving without the
sticker, he could receive a small fine. George Cochran, the owner of the
company, fired Adams for his refusal to drive the truck. Cochran contended that
Adams was an at-will employee and, because there was no written employment
contract stating otherwise, he had a right to discharge Adams with or without
good cause. Adams sought to recover damages for wrongful termination. The
court most likely held that Adams:
cannot recover, because he failed to notify the authorities of his employer's
actions and cannot avail himself of the whistleblowing exception to the
employment-at-will doctrine.
can recover under a tort theory exception to the employment-at-will doctrine.
cannot recover, because his employer did not violate any law or breach any
contract when Adams was terminated.
can recover under a public policy exception to the employment-at-will doctrine.
can recover under a public policy exception to the employment-at-will doctrine.
The term "employment at will" means that:
the employer may not fire an employee except for cause, and only after a formal
review process.
either party (employer or employee) may terminate the employment relationship
at any time and for any reason or no reason, so long as the termination does not
violate a statutory law or an employment contract.
the employee may quit his or her job only for cause, and only after consulting
with the employer.
the employer must hire when the will of the employee coincides with the will of
the employer.
either party (employer or employee) may terminate the employment relationship
at any time and for any reason or no reason, so long as the termination does not
violate a statutory law or an employment contract.
In 1938, Congress extended wage-hour requirements to cover all employers
engaged in interstate commerce or in the production of goods for interstate
commerce by passing the:
Fair Wage Earners Standards Act.
Fair Employment Standards Act.
Fair Labor Standards Act.
Fair Working Standards Act.
Fair Labor Standards Act.
An oral promise that an employer makes to employees regarding discharge
policy may be considered part of an implied contract.
True
False
True
Lila retires from her job as a systems analyst for Marketing Solutions, Inc. Lila's
Social Security benefits are fixed by statute and will:
not increase with the cost of living.
automatically increase with the cost of living.
increase with the cost of living whenever revenues increase.
increase with the cost of living only when the statute is "re-fixed."
automatically increase with the cost of living.
On returning from a FMLA entitled leave:
most employees must be restored with nearly equal pay and benefits.
most employees must be restored with equivalent pay and benefits.
employers have a choice as to whether or not to continue the worker's health-
care coverage on the same terms as if the employee had continued to work.
all employees must be restored with equal pay and benefits.
most employees must be restored with nearly equal pay and benefits.
In cases brought by employees alleging that their privacy has been invaded by
email monitoring:
the courts have tended to hold for the employees.
the courts have tended to hold for the employers.
the courts have tended to hold for the employers but only if the employees were
informed of the monitoring.
none of these choices are correct.
the courts have tended to hold for the employers.
Certain employers must provide their employees with up to twelve weeks of
family or medical leave during any twelve-month period.
True
False
True
A common law doctrine under which either party may terminate an employment
relationship at any time for any reason, unless a contract specifies otherwise is
referred to as:
the contract theory of employment.
the agency theory of employment.
employment at will.
the tort theory of employment.
employment at will.
Employers are required to keep occupational injury and illness records for each
employee if the employers have:
fifty-one or more employees.
eleven or more employees.
thirty-one or more employees.
twenty-one or more employees.
eleven or more employees.
Some employers voluntarily offer paid family leave, but this is not a requirement
of the Family and Medical Leave Act.
True
False
True
Only state law governs drug tests of private-sector employees.
True
False
True
Jenna has just been hired as an Administrative Assistant, and during her
orientation session, was given a copy of the firm's Employee Handbook. Among
other things, the Handbook said that her new employer could conduct
surveillance of her activities, as more specifically set forth below. Which of these
activities may the employer legally undertake?
Review Jenna's email
Review Jenna's instant messages
Review Jenna's internet use
Jenna's employer may legally conduct all of these activities
Jenna's employer may legally conduct all of these activities
To fulfill a temporary contract, Alpha Communications Company needs some
employees to work overtime. All of the following employees may work more than
forty hours per week except:
Earl, who is an outside salesperson.
Beth, who is under sixteen and on spring break.
Diane, who is a professional.
Carl, who is an executive.
Beth, who is under sixteen and on spring break.
Remedies for violations of FMLA include:
promotion, if a promotion has been denied.
job reinstatement.
damages for unpaid wages (or salary), lost benefits, denied compensation, and
actual monetary losses.
All of these choices.
All of these choices.
Job Co runs a temporary employment agency providing administrative assistants
to area businesses. Ninety percent of the people they place are females.
Recently, a young man has been hired to screen potential employees. The CEO
believes the new employee may have ulterior motives, specifically to pick up
women. She has directed her IT department to monitor the employee's telephone
and email usage and directs the HR department to send notice to all employees.
The reality is that only the male employee will be monitored. Is this permissible?
No, because any monitoring of employees' email and telephone usage during
work hours is acceptable under the 4th Amendment.
No, although the employee's intentions may be repugnant to the CEO, by only
monitoring one employee, this is a violation of the ordinary course of business
exception and therefore a violation of the 4th Amendment.
Yes, it is permissible because all employees have been given notice.
Yes, if an employee is engaging in unacceptable activities according to the CEO,
then it is permissible to monitor the employee.
No, although the employee's intentions may be repugnant to the CEO, by only
monitoring one employee, this is a violation of the ordinary course of business
exception and therefore a violation of the 4th Amendment.
Thalia is an employee of Universal Insurance Company. Universal's employee
manual states that workers will be dismissed only for good cause. With respect to
the employment-at-will doctrine, this is:
an exception based on tort theory.
an example of the doctrine.
an exception based on public policy.
an exception based on contract theory.
an exception based on contract theory.
A mass layoff is defined as an employment loss of:
at least one-third of the full time employees at a single job site.
at least 25 percent of all full-time employees at a single job site.
at least fifty full-time employees.
all part-time employees.
at least one-third of the full time employees at a single job site.
All employees are entitled to overtime pay.
True
False
False
Under federal law, employers can monitor employees' personal communications
without the employees' consent.
True
False
False
A minimum wage must be paid to employees in:
all industries.
covered industries only.
no industries.
small-business industries only.
covered industries only.
Elise was working as a computer programmer when there was a fire at the office.
The office closed, as a result, and Elise lost her job. While she looks for another
job, or goes back to school, she may be entitled to:
a pension plan.
social security.
unemployment insurance.
medicare.
unemployment insurance.
Ilsa works as a clerk for Java Café at minimum wage. The minimum-wage rate is
revised:
whenever the president issues an executive order to revise the rate.
annually, according to the rate of inflation.
periodically by Congress.
every seven years, according to changes in the cost of living.
periodically by Congress.
An employer can require an employee to take a lie-detector test when
investigating losses attributable to theft.
True
False
True
State law regulates overtime pay.
True
False
False
Which federal law provides workers who have been terminated with continued
access to health insurance?
IRCA
COBRA
ERISA
FMLA
COBRA
Frida is an employee of Green Recycled Products Company. A state statute
protects Frida from Green's retaliation if Frida reports to state officials, or others,
that Green is involved in unsafe or illegal activity. With respect to the
employment-at-will doctrine, this is:
an exception based on tort theory.
an example of the doctrine.
an exception based on public policy.
an exception based on contract theory.
an exception based on public policy.
Of the following employees, the one most likely not to be covered by state
workers' compensation laws is:
Adam, a fifteen-year old paperboy.
Marion, an auto mechanic.
Jorge, a migrant agricultural worker.
all of these choices.
Jorge, a migrant agricultural worker.
Uri is an employee of Verity Security Services. For Uri to obtain the benefits of
federal wage-hour requirements, Verity must be engaged in:
interstate commerce.
business activity.
international commerce.
employment at will.
interstate commerce.
The First Amendment:
allows both government and all private employers to block Web sites.
prevents government employers from blocking certain Web sites.
prevents both government and all private employers from blocking certain Web
sites.
prevents all private employers from blocking certain Web sites.
prevents government employers from blocking certain Web sites.
Drug testing of employees by private employers is permitted.
True
False
True
Kyle works as a forklift operator for Local Warehouse Company. Assuming that
Kyle meets other requirements, the maximum number of hours that he can work
per week without overtime pay is:
unlimited.
thirty-nine.
forty-one.
forty.
forty.
Security Guards, Inc. (SGI), is a security service firm. SGI may subject its
employees to:
drug tests and lie-detector tests.
drug tests only.
lie-detector tests only.
neither drug tests nor lie-detector tests.
drug tests and lie-detector tests.
Renee takes leave under the Family and Medical Leave Act when she has her
son. During her FMLA leave, Renee's company sends her a letter stating that her
health insurance is being canceled because she is not currently working for
them. Renee tells her company that this violates the FMLA. Is Renee correct?
Yes, because when an employee takes FMLA leave, the employer must continue
the worker's health-care coverage on the same terms as if the employee had
continued to work.
No, because health insurance can be canceled when an employee is not doing
their job whether they are on leave or not.
Yes, because health insurance must continue when employees take FMLA leave
for the birth of a child.
All of these choices. No, because employees can now get health insurance
under the Affordable Care Act.
Yes, because when an employee takes FMLA leave, the employer must continue
the worker's health-care coverage on the same terms as if the employee had
continued to work.
Government employers are constrained in drug testing by the Fourth Amendment
to the U.S. Constitution, which:
guarantees the right of free assembly.
guarantees government employees an absolute right to privacy.
protects the right of free speech.
prohibits unreasonable searches and seizures.
prohibits unreasonable searches and seizures.
Café Dining, Inc., employs one hundred workers in at three locations in two
states. Under the Family and Medical Leave Act of 1993, Café must provide its
employees, during any twelve-month period, family or medical leave of up to:
twelve years.
twelve days.
twelve months.
twelve weeks.
twelve weeks.
Richard Winters was an at-will employee for the Houston Chronicle for nine
years. After he had worked there for about four years, he became aware of illegal
activities carried out by other employees. He learned that the Chronicle was
falsely reporting an inflated number of paid subscribers, and that several
employees were engaged in inventory theft. His supervisor offered him an
opportunity to participate in a kickback scheme with a manufacturer of plastic
bags. Winters reported all these activities to upper-level management. He made
no report to law enforcement agencies. He was fired six months later. Winters
lived in a state that did not have a whistleblower statute. He filed a lawsuit
against the Chronicle for wrongful termination. The court most likely held that
Winters was:
not protected, because under the terms of his job, the Chronicle had the right to
fire him at any time, with or without cause.
protected by a public policy exception to the employment-at-will doctrine.
not protected, because he was not fired for refusing to participate in an illegal act.
protected by the application of the employment-at-will doctrine.
protected by a public policy exception to the employment-at-will doctrine.
Hugh, an employee of International Shipping Corporation (ISC), is injured on the
job and accepts workers' compensation. Hugh can successfully sue ISC:
under no circumstances.
only if the injury was caused by ISC intentionally.
regardless of ISC's fault.
only if the injury was caused by ISC's negligence.
only if the injury was caused by ISC intentionally.
An employee's Social Security contributions under the Federal Insurance
Contributions Act (FICA):
are twice that of what the employer pays.
are equal in amount to what the employer pays.
are one-half that of what the employer pays.
are one-fourth that of what the employer pays.
are equal in amount to what the employer pays.
Jay works as an employee for Kitchen Appliances, Inc. (KAI), which is subject to
the Occupational Safety and Health Act. Jay is killed in a work-related accident.
To avoid a fine, KAI must notify:
the U.S. Department of Labor.
the Social Security Administration.
the U.S. Department of Justice.
the U.S Department of Health and Human Services.
the U.S. Department of Labor.
If an employee recovers benefits from a workers' compensation claim, he or she:
must show that the employer caused the injury.
may also sue the employer for negligence.
can raise a defense of contributory negligence.
is normally barred from also recovering from the employer for negligence.
is normally barred from also recovering from the employer for negligence.
The Employee Polygraph Protection Act:
bars employers from tapping employees' telephones to collect private information
about them.
generally prohibits employers from requiring employees or job applicants to take
lie-detector tests as a condition of employment.
greatly expands employers' ability to use or ask about the results of any lie-
detector tests employees might have taken in the past.
prohibits intentional and unauthorized access to stored electronic
communications.
generally prohibits employers from requiring employees or job applicants to take
lie-detector tests as a condition of employment.
An employer may be held liable for the wrongful discharge of an employee if the
discharge violated:
CPSC rules.
the Social Security Act.
the Tenth Amendment to the U.S. Constitution.
the common law or statutory law.
the common law or statutory law.
Luke is a maintenance employee for Natural Products Company. Under the
Employee Retirement Income Security Act, Luke's contributions to his pension
plan vest:
immediately.
after five years of employment.
five years before retirement.
after five years of retirement.
immediately.

When a principal causes a third party to reasonably believe an agent has

authority to act on the principal's behalf, even if the agent does not have such
authority, this is known as:
apparent authority.
In agency law, ratification occurs when:
a principal, by word or by action, affirms a contract made by a person who is in
fact not an agent.
Elin, an agent for First Credit Corporation (FC), enters into an unauthorized
contract with Great Expectations, Inc. (GE), purportedly on FC's behalf. This
contract will be enforceable if it is ratified by:

a. FC.
b. GE.
c. Elin.
d. any third party.
FC
In most states, if the contract being executed is or must be in writing, then the
agent's authority must also be in writing. This requirement is the:

a. shelter principle.
b. mirror image rule.
c. equal dignity rule.
d. perfect tender rule.
equal dignity rule
Most agency relationships are based on:

a. ratification.
b. agreement.
c. estoppel.
d. operation of law.
agreement
Alpha Sales, Inc., employs Britney as a sales agent. Alpha gives Britney a
furnished office and an expense account. Consumer Retail Company (CRC)
orders goods from Britney, who fills the order with goods from Deal EZ
Corporation. The goods are defective. CRC may recover damages from Alpha on
the ground of:

a. express authority.
b. implied authority.
c. equal authority.
d. apparent authority.
apparent authority
Fred Hash worked for Van Stavern Construction Co. as a field supervisor in
charge of constructing a new plant facility. Hash entered into a contract with
Sutton Steel & Supply, Inc., to provide steel to the construction site in several
installments. Hash gave the name of the principal on whose behalf he was
making the contract as B. D. Van Stavern (which was the name of the president
and owner of the firm) rather than as Van Stavern Construction Co. The contract
and all subsequent invoices had only B. D. Van Stavern's name, not the
company's name, on them. Sutton delivered several loads, and the invoices for
each load were signed by Van Stavern employees and paid with corporate
checks made out to Sutton. Van Stavern was unaware that the materials had
been purchased in his name and not in the name of the corporation. When Van
Stavern failed to pay Sutton Steel for subsequent deliveries, Sutton Steel filed a
lawsuit against Van Stavern personally for unpaid debts totaling $40,000. Sutton
Steel claimed that Van Stavern had ratified the contracts of its employee, Hash,
by allowing payment on the previous invoices. The court most likely held that Van
Stavern had:

a. not ratified the contracts, because he did not have legal capacity to enter into a
contract for the purchase of steel.
b. not ratified the contracts, because he did not have knowledge of all the
material facts involved in the transaction.
c. ratified the contracts, because he expressly gave his approval for Hash to buy
steel.
d. ratified the contracts, because he was an identified principal.
not ratified the contracts, because he did not have knowledge of all the material
facts involved in the transaction.
T/F. Even after an agency relationship has terminated, there are circumstances
under which a principal may be bound by his or her agent's act.
T. When an agency is terminated by act of the parties, it is the principal's duty to
inform any third parties who know of the existence of the agency that it has been
terminated. Although an agent's actual authority ends when the agency is
terminated, an agent's apparent authority continues until the third party received
notice (from any source) that such authority has been terminated.
A minor can:

a. enter a contract indirectly through an agent.

b. none of these choices.
c. be an agent.
d. be a principal in a contract.
be an agent
T/F. A principal cannot be held liable for an agent's crime.
F. In some cases they CAN BE. Usually deals with regulations.
A person having a duty created by his or her undertaking to act primarily for
another's benefit in matters connected with the undertaking is:

a. a fiduciary.
b. a principal.
c. an independent contractor.
d. a notary public.
a fiduciary
T/F. Notice of agency termination must be in writing for it to be effective.
F. If the agent's authority is written however, it normally must be revoked in
writing.
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AAA Auto Sales, Inc., employs BBB Collection Company as a collection agent.
While repossessing goods from Cathy, one of AAA's customers, BBB
intentionally injures Cathy. Cathy can recover from:
a. BBB only.
b. Cathy's insurance company only.
c. AAA or BBB.
d. AAA only.
AAA or BBB.
Ann is a businessperson acting as an agent for Business Sales, Inc. (BSI). In an
ordinary business situation, Ann:

a. must obtain BSI's written authority to enter into a contract for BSI.
b. must obtain BSI's later ratification of a contract entered into for BSI.
c. cannot contract on BSI's behalf.
d. can contract on BSI's behalf without further authority or ratification.
can contract on BSI's behalf without further authority or ratification.
Commercial Development Corporation (CDC) hires Delta Construction Company
to work at a site as an independent contractor. Whether CDC will be liable for
physical harm suffered by a third party at the site due to Delta's negligence
depends on:
a. which party obtained insurance to cover tort liability.
b. who is paying Delta.
c. whether exceptionally hazardous activities are involved.
d. what Delta bid for the job.
whether exceptionally hazardous activities are involved. Generally, an employer
is not liable for physical harm caused to a third person by the negligent act of an
independent contractor in the performance of a contract. An exception arises
when hazardous activities are involved. In these situations, an employer cannot
be shielded by liability merely by using an independent contractor.
Sara works as a clerk in Trina's Local Clothes Shop. Trina controls the methods
and details of the performance of Sara's work. Sara is not authorized to modify
the prices or other terms of a sale at the shop. Sara is:
a. Trina's agent and employee.
b. Trina's employee only.
c. not Trina's agent, employees, or independent contractor.
d. an independent contractor.
Trina's agent and employee.
A principal may affirm the desirable parts of a contract and reject the undesirable
parts of the contract.
True
False
False
Agency by ratification requires affirmation by:
a. word or action.
b. social duty.
c. estoppel.
d. written contract.
word or action
Kady, an agent for Lebron, enters into a contract on Lebron's behalf with Madge
that must be in writing to be enforceable under the Statute of Frauds. Kady's
authority to enter into this contract is not in writing. Under the equal dignity rule,
this contract is:
a. voidable at Lebron's option.
b. voidable at Madge's option.
c. void.
d. enforceable.
void at Lebron's option
T/F. A principal must ratify a contract to be bound to it.
False. An agent with proper authority can bind a principal to a contract
Roz works for Trina's Long Distance Clothes Shop. Trina authorizes Roz to sell
clothes in remote locations at prices that Roz negotiates. Roz is not authorized to
modify the prices or other terms of a sale. Roz is:
a. Trina's agent and employee.
b. Trina's employee only.
c. not Trina's agent, employee, nor an independent contractor.
d. an independent contractor.
Trina's agent and employee
T/F. A principal may deny the existence of an agency relationship whenever it
suits his or her purpose.
False. May not deny duties owed to agent, these being compensation,
reimbursement and indemnification, cooperation and safe working conditions.
T/F. A principal owes an agent a duty of ratification.
False. No such duty
Pam is an agent for Refined Chemicals Corporation. Refined Chemicals owes
Pam the duty of:
a. performance.
b. safe working conditions.
c. obedience.
d. accounting.
safe working conditions
What duties does a principal owe to his/her agent?
Duties of compensation, reimbursement and indemnification, cooperation and
safe working conditions.
Lacy asks Moore to buy land for an office park that Lacy wants to build. Before
Moore completes the land purchase, Lacy dies. In this situation, the agency
relationship terminates by:
a. act of the parties.
b. renunciation.
c. operation of law.
d. revocation.
Operation of law. The general rule is that by operation of law the death of either
the principal or the agent automatically and immediately terminates an ordinary
agency relationship.
T/F. A principal owes an agent a duty of accounting.
False. It is the other way around
T/F. An agency relationship can be formed without consideration.
True
Ida hires Jim, a real estate broker, to act as her agent to sell her land for
$10,000. Oil is discovered beneath the land, causing its market value to increase
one hundred-fold. The agency agreement is likely:
terminated by operation of law. When an event occurs that has such an unusual
effect on the subject matter of the agency that the agent can reasonably infer that
the principal will not want the agency to continue, the agency terminates by
operation of law. The extreme change in market value of the subject of the
agency would allow Jim to reasonably infer that Ida would not want the agency to
continue.
T/F. A fiduciary relationship allows parties to avoid obligations without liability.
False. An agency is a fiduciary relationship whereby the agent will act on behalf
and instead of the principal in negotiating and transacting business with third
parties. A principal is liable for the obligations undertaken by his, her or its agents
within the scope of the agency.

A sole proprietorship is a separate legal entity from its owners for income tax
purposes.
F
Like a corporation, an LLC or a partnership, a franchise is a form of business
organization recognized under the law as a separate person.
F
In some circumstances, a franchisor may be liable for the act of a franchisee's
employee.
T
For federal income tax purposes, a partnership is not a taxpaying entity.
T
Under the UPA, a corporation can be a partner
T
Upon a partner's dissociation from the firm, his or her right to participate in the
management of the firm and the conduct of its business is terminated
T
A partner has a right to compensation from the partnership.
F
Typically, a partnership retains earnings tax-free
F
Legally, a joint venture is equivalent to a limited partnership.
F
The duty to account for partnership assets is one of the fiduciary duties that
partners owe to each other.
F
Upon dissolution, a partnership ceases to exist.
F
An LLC must have an operating agreement.
F
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Generally, absent an agreement to the contrary, profits from an LLC are
distributed equally.
T
An LLC can be formed under common law.
F
Shareholders do not have legal title to corporate property but do have an
equitable interest in the firm.
T
A corporation can be formed under common law.
F
A public corporation is also known as a publicly held corporation.
F
Generally, a shareholder in a professional corporation is not personally liable for
his or her torts.
F
The minimum contacts rule determines in which state a corporation must be
chartered.
F
Every corporation must identify a specific person as an agent to receive legal
documents on behalf of a corporation.
T
A director of a corporation is elected by a majority vote of the other members of
the board.
F
A shareholder who owns sufficient shares to exercise de facto control over a
corporation may owe a fiduciary duty to the minority shareholders.
T
After a merger, a disappearing corporation's preexisting rights disappear.
F
After a consolidation, the new corporation inherits all of the consolidating
corporations' obligations
T
Shareholder approval is required when a corporation buys all of the assets of
another company.
F
The board of directors of a targeted corporation must approve a tender offer
before its shareholders can accept it.
F
A registration statement must include a financial statement certified by an
independent public accounting firm.
T
Private offerings of securities in unlimited amounts can never be exempt from the
registration requirement of the Securities Act of 1933.
F
If a person trades stock of a company about which she has material nonpublic
information, and the person on the other side of the trade does not have that
information, then a violation of Rule 10b-5 has occurred.
F
Other than utilities and other government sanctioned monopolies, it is illegal to
have a monopoly in the United States.
F
Recently, when oil prices approached $150 per barrel in the United States, the
possibility of suing OPEC for violations of U.S. antitrust laws was discussed.
However, such a case was never filed. Based on the book's treatment of antitrust
law, is OPEC subject to U.S. antitrust law? (Yes / No)
Yes
Generally, investors have the most privacy from public disclosures in a

a) Partnership
b) Limited partnership
c) LLC
d) Corporation
A
Suppose that you and your Uncle Bob are contemplating forming a business
entity together. You have $100,000 to invest in the business; Uncle Bob has only
$10,000, but even his relatively small investment is needed. Other investors will
be investing amounts ranging from $10,000 to $100,000. You trust Uncle Bob's
business judgment and so you would like to maximize his managerial authority
despite his small investment. Which type of business entity would most easily
allow you to accomplish this goal? (Use general rules for most states)

a) C Corporation
b) Partnership
c) LLC
C
Under Rule 10b-5, those who possess material nonpublic information about a
company, and who know or should know that such information was obtained in
violation of a fiduciary duty, have a duty to
a) Not trade in the company's stock
b) Not tell anyone about the information
c) Abstain from trading in the company's stock or disclose the information prior to
trading
d) None of the above
C
In S.E.C. v Texas Gulf Sulphur Co., the sentence "[W]hether facts are material
within Rule 10b-5..." is best characterized in the FIRAC scheme as

a) Facts
b) Issue
c) Rule
d) Application
e) Conclusion
C
International Products, Inc. (ICI), has exclusive control over the market for its
product. ICI's market power is subject to evaluation under

a) The Clayton Act

b) The Federal Trade Commission Act
c) The Sherman Act
d) None of the above
C
Rally Speedboat Corp. refuses to sell its products to Super Sports Marina. This is

a) A group boycott
b) A horizontal market division
c) An attempted monopolization
d) A unilateral refusal to deal
D
International software, Inc., conditions the sale of one of its products on
Nationwide Office System's agreement to buy another of International's products.
This deal is

a) Legal, depending on its purpose and the effect on competition

b) Legal, depending on production and transportation costs
c) Legal under any circumstances
d) Not legal under any circumstances
A
The citation 473 F.3d 1080 is from a

a) State trial level court

b) A federal trial level court
c) The U.S. Supreme Court
d) A federal appeals court
D
In an S Corporation, why would a managing shareholder be inclined to pay
herself more as profits and less as salary? (Be brief and print clearly).
40. to avoid Social Security / payroll tax withholding
Had the S.E.C. pursued Martha Stewart for insider trading in violation of Rule
10b-5 with respect to her sale of ImClone stock, which liability theory would it
most likely have used? (Be brief and print clearly).
41. tipper / tippee theory
The book states unequivocally that the double taxation of a C Corp. is a major
disadvantage of the C Corp. However, that statement is not always true. State
under what circumstances it may not be true. (Be brief and print clearly).
42. At high income levels, a C Corporation has some advantages. First,
corporate tax rates are lower than individual tax rates

Agency is Defined as...

the fiduciary relationship reflecting one party's agreement to act on behalf of another
party and be subject to her control, with the second party's consent.
When determining whether a worker is an employee or an independent contractor, a key
element to consider is:
the extent to which the employer controls the actions of the worker.
Which of the following is not a way for an agency relation to arise?
By rescission
Ratification means:
the act of approving or affirming a contract made by someone who was not an agent or
by an agent who was not authorized to form the contract.
Which of the following is not a duty of an agent?
Payment
Under the equal dignity rule:
if a contract must be in writing to be executed, an agent's authority must also be in
writing.
When a principal causes a third party to reasonably believe an agent has authority to act
on the principal's behalf, even if the agent does not have such authority, this is known as:
apparent authority.
With respect to a principal's ratification of an agent's unauthorized act, which of the
following is not necessary?
The third party must withdraw before the principal affirms.
Under the legal doctrine of respondeat superior:
the principal is responsible for the agent's torts, as long as they are committed within the
scope of employment.
Which of the following does NOT terminate an agency?
The principal calls for an accounting

After Ben's death, his heir Cathy asks his secretary Elin to notify Ben's bank,
First National Bank. On being notified, First National can pay or certify checks
drawn by Ben, on or before the date of his death, unless Cathy asks to stop all
payments, for
ten days after the date of death.
A payor bank is also a collecting bank.
False
A stale check is one that has been outstanding for longer than one month
False
A bank that pays a customer's check with a forged indorsement must recredit the
customer's account.
True
A bank is not obligated to pay an uncertified check presented more than six
months from its date.
True
Most checks are processed manually.
False
A cashier's check is an instrument in which a bank draws a check on itself.
True
A drawer is liable to the holder of a check if the check is not honored.
True
A bank is never liable for failing to honor a customer's stop-payment order.
False
Amy takes her car to Better Fix-It, Inc., which repairs the car and bills Amy for
$500. Amy writes out a check drawn on Capital Bank, but later, believing that
Better did not repair the car properly, issues a stop-payment order.
must stop payment if Capital has a reasonable time to act.
A check is a draft.
True
CDs generally acknowledge the holder's deposit and only implicitly suggest a
promise to repay
False
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A notation on an instrument that it is "negotiable" is sufficient to render it
negotiable.
False
Rubber stamp signatures can be legally binding signatures.
True
To be negotiable, the terms of a promise or order must be included on the face of
the instrument.
True
Stating on an instrument that it is "as per contract" renders it nonnegotiable
False
A holder is any person in possession of a negotiable instrument payable to
bearer or to an identifiable person who is the person in possession.
True
An undated instrument cannot be negotiable.
False
To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in
favor of Chris. A draft is
an unconditional written order to pay money.
Ben, the owner of Construction Contractors, Inc., signs an instrument that
includes the phrase "as per contract." This instrument is
negotiable.
An instrument "payable to bearer" is transferable by assignment or by
negotiation.
True
A bearer instrument is negotiated by delivery alone.
True
A blank indorsement can consist of a mere signature.
True
A promise to give value in the future is normally sufficient to confer the rights of
an HDC on one in possession of a negotiable instrument
False
Good faith, for purposes of UCC Article 3, is "honesty in fact and the observance
of reasonable commercial standards of fair dealing."
True
Acquiring a negotiable instrument after its maturity date may prevent a holder
from becoming an HDC
True
A person who accepts an instrument that has been completed without knowing
that it was incomplete when originally issued cannot be an HDC.
False
The shelter principle may apply to anyone who can trace his or her title back to
an HDC.
True
Ilsa wants to negotiate a bearer instrument in her possession to Jay for an order
instrument in Jay's possession. Indorsements are required to negotiate
Orders instruments only.
At International Credit Corporation, Jay indorses and cashes a check payable to
"Jay or Kelly." Kelly has
no further claim to payment
A signature may be typed.
True
A maker is secondarily liable on an instrument.
False
An authorized agent may be personally liable on an instrument if the agent signs
the agent's name but not the principal's name.
True
An unauthorized signature binds the person whose name is forged.
False
A drawer who is induced by an imposter to issue a check in the name of an
impersonated payee can avoid payment on the check to an innocent holder
False
Fraud in the execution occurs whenever someone signs an instrument before all
essential terms have been completed.
False
When the drawee of an unaccepted draft or check pays to a holder the amount
due in full, all parties to the instrument are discharged.
True
Accidental destruction of a negotiable instrument cancels it.
False
Dina, an accountant for Eagle, Inc., issues company checks payable to
nonexistent persons drawn on Eagle's account at First State Bank. Dina indorses
the checks and deposits them in her account. Eagle discovers the theft and
demands that First recredit its account. First's best defense is that
Eagle was in a better position than First to prevent the theft
City Bank issues to Dave a cashier's check. Evan steals the check, forges Dave's
signature, adds his own signature, and cashes it at First County Bank, which
obtains payment from City. Dave discovers the theft and obtains a replacement
check from City, which sues First. The court will likely rule in favor of
City, because First breached the presentment warranty that there are no
unauthorized indorsements on the check.

Terms in this set (106)

To pay for investment advice from financial consultants Smith and Jones, Tony
signs a check payable to "Smith or Jones." A proper indorsement of the check is:
"Smith" only, or "Jones" only, or "Smith" and "Jones."

it is possible. Either party may sign.

An acceptor is secondarily liable on an instrument.
false

An acceptor, like a drawee bank, is primarily liable on an instrument

Mike receives a payroll check from National Computer Systems, Inc., and
indorses it by signing his name on the back of the check. This is:
a blank indorsement.

"For deposit only" is an example of a restrictive indorsement. Indorsing the check

by signing his name only is a blank indorsement
Don writes a check to Eve drawn on Don's account at First Bank. Eve presents
the check for payment to First Bank, which accepts it. The bank is:
primarily liable for payment.

Don is secondarily liable as drawer. First Bank is an acceptor, i.e., a drawee

which accepted a draft and now has primary liability.
Suppose that you receive a check from your mother. You sign the check on the
back and transfer it to your friend, Kit, in payment for some of Kit's used books.
When you signed the check on the back, you became:
an indorser

You did not become Kit's agent. You became and indorser
A time draft is payable at a definite future time.
true

A time draft is a draft which is payable at a specified point in the future in contrast
with an instrument payable on demand.
If Bethany Lewis receives a check payable to the order of Bethanie Louis, she:
can indorse the check either "Bethany Lewis" or "Bethanie Louis."

If Bethany Lewis receives a check payable to the order of Bethanie Louis, she
can indorse the check either "Bethany Lewis" or "Bethanie Louis."
All of the following would be an example of a material alteration to an instrument
except:

changing the rate of interest.

penny.

changing the amount on the instrument by one thousand dollars.

correcting the maker's address.

correcting the maker's address.

All of the following would be an example of a material alteration to an instrument

except correcting the maker's address.
An indorsement that specifies no particular indorsee and can consist of a mere
signature is called:
a blank indorsement.

An indorsement that specifies no particular indorsee and can consist of a mere

signature is called a blank indorsement.
A drawer's liability arises before presentment and notice of dishonor.
false
A defense that is valid against all holders of a negotiable instrument is called a:
universal defense.

A defense that is valid against all holders of a negotiable instrument is called a

universal defense.
Jack receives a check from Kappa Company and indorses it "without recourse."
This indorsement is:
a qualified indorsement.

"For deposit only" is an example of a restrictive indorsement

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A promissory note cannot be a negotiable instrument.
false.

An instrument is a note if it contains a promise and it is negotiable if it contains

the requirements of negotiability.
In order to be negotiable, a promissory note does not require that the:
promise in the note be made orally.

Because they are negotiable instruments, promissory notes must meet the
requirements for negotiability. They must be payable on demand or at a definite
time, be unconditional, and be in writing, in addition to several other
requirements. This answer involves one of the listed requirements.
Warranty liability binds parties who only present instruments for payment.
true
Checks are promises to pay a sum of money at some time in the future.
false

Checks are payable on demand.

The completion of an originally incomplete instrument in an unauthorized manner
is a defense against payment on the instrument to an HDC.
false

The completion of an originally incomplete instrument in an unauthorized manner

is not necessarily a complete defense against payment on the instrument to an
HDC.
An instrument payable to two persons jointly requires the indorsement of only
one of the payees for negotiation.
false

An instrument payable to two persons jointly requires the indorsement of both of

the payees for negotiation.
Burt pays Carol $100 in the form of a personal check. After Carol transfers the
check to Dennis by signing her name on the instrument, she is:
an indorser.

The indorsee is the person to whom a check made payable instead of the stated
payee, i.e., Dennis.
In general, an agent must clearly indicate that he or she is signing on behalf of a
clearly named principal to bind the principal.
true
The UCC article that deals with negotiable instruments is:
Article 3.

Article 7 covers warehouse receipts, bills of lading, and other documents of title.
Article 3 of the UCC deals with negotiable instruments.
Alpha Office Properties signs a check payable to Beta Landscape Design, Inc.,
drawn on Alpha's account at City Bank and dated June 1. Beta indorses the
check to Delta Lawn Care Corporation. To hold Beta secondarily liable, Delta
must present the check for payment within:
thirty days of its indorsement

The holder of a domestic check must present the check for payment or collection
within thirty days of its date to hold the drawer (Alpha) secondarily liable, but
thirty days after the indorsement to hold the indorser liable.
In negotiable instruments law, the drawee's signed agreement to pay a draft
when it is presented is referred to as a(n):
acceptance.
In negotiable instruments law, the drawee's signed agreement to pay a draft
when it is presented is referred to as an acceptance.
A check is a draft.
true

Checks are three party instruments (draft): the drawer, drawee and payee.
A person who in good faith acquires a negotiable instrument from a thief cannot
become an HDC.
false

A person who in good faith acquires a negotiable instrument from a thief can
become an HDC.
The liability of all parties to an instrument is discharged when:
the party primarily liable on it pays to the holder the full amount due.

The liability of all parties to an instrument is discharged when the party primarily
liable on it pays to the holder the full amount due.
A person whose name is forged on an instrument cannot avoid payment on the
instrument to an HDC.
false

A person whose name is forged on an instrument can avoid payment on the

instrument to an HDC because forgery is a real defense.
An instrument is not defective because it has been previously dishonored.
false

An instrument is defective because it has been previously dishonored.

A person who acquires a check stamped "insufficient funds" is put on notice and
therefore acquires HDC status.
false

A person who acquires a check stamped "insufficient funds" is put on notice and
therefore cannot acquire HDC status
Ewa signs an instrument unconditionally promising to pay to "First State Bank"
$5,000 with interest in installments with the final payment due June 1, 2012. The
instrument that Ewa signed is most likely:
a promissory note.

Negotiable instruments must contain a promise or order to pay, but a party is not
that requirement.
An indorsement is defined as:
a signature placed on an instrument, or a piece of paper firmly attached to an
instrument, designed to transfer ownership rights in that instrument.

Such a person is known as an indorser

Dan signs a check payable to Eagle Investors, Inc., and gives it to Eagle, leaving
the amount blank but authorizing Eagle to fill in the check for $1,000. Eagle fills in
$1,500 and negotiates the check to First State Bank, to whom Eagle owes
$1,500. First State, an HDC, can enforce the check for:
$1,500.

First state can enforce the note to the extent it gave value.
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A breach of contract is a defense against payment on a check to an ordinary
holder.
true

Breach of the underlying contract for which the negotiable instrument was issued
is a personal defense and effective against ordinary holds but not an HDC.
A holder in due course (HDC) takes a negotiable instrument free of most
defenses to it.
true

An HDC is only subject to real defenses, i.e., infancy and duress to the extent the
obligation is nullified, fraud in the execution and bankruptcy.
The UCC specifies several types of negotiable instruments. They include:
drafts.
checks.
promissory notes.
all of these choices
all of these choices
The UCC specifies several types of negotiable instruments, including drafts,
checks and promissory notes.
The UCC requires that HDCs take instruments in good faith. This means that:
the holders must have acted honestly and observed all reasonable commercial
standards of fair dealing.

Defects in an instrument are related to notice requirements, not to good faith

requirements.
A check written for a purchase in a store is a:
negotiable instrument.

A check is not a certified note. Rather, a check is the most commonly used
negotiable instrument.
For an ordinary holder to become an HDC, the person from whom the holder
acquired a negotiable instrument must have acted in good faith.
false

It is only critical that the holder act in good faith to be an HDC, not the holder's
transferor.
All of the following are types of negotiable instruments except:

drafts.
certificates of deposit.
conditional promises to pay.
checks
certificates of deposit.

A certificate of deposit is a type of note that is issued when a party deposits

funds with a bank that the bank promises to repay, with interest, on a certain
date. The bank is the maker of the note, and the depositor is the payee.
All of the following are examples of presentment warranties except:

the instrument has not been altered.

the person obtaining payment has no knowledge that the signature of the
instrument's issuer is unauthorized.

there are no missing or unauthorized indorsements.

the instrument has not been dishonored.

the instrument has not been dishonored.

All of the following are examples of presentment warranties except that the
instrument has not been dishonored.
An instrument can be cancelled by:

intentionally writing "paid" across its face.

intentionally tearing it up.
both of these choices.
neither of these choices.
both of these choices.
A personal defense may be raised only to avoid payment to an HDC.
false
Under the shelter principle, one who does not qualify as an HDC but who
acquires his or her title through an HDC acquires those rights and privileges.
true

The ordinary holder is sheltered under the transferee's HDC status. For example,
an HDC who transfers the instrument to a subsequent holder as a gift
Julian receives a promissory note from his grandmother as a birthday present. Is
Julian a holder in due course (HDC) with respect to the note?
No, because the note was a gift.

In order to be an HDC, Julian must give value for the instrument. He has not
done so and therefore cannot be a holder in due course.
To pay for improvements to Diners Cafe, Earl executes a negotiable instrument
in favor of First County Bank. They are the only parties to the instrument. A
negotiable instrument that has only two parties is:
a promissory note.

A draft is a three party instrument. A promissory note is a two party instrument.

Knowledge of one defense does not preclude a person from asserting HDC
status in regard to all other defenses.
false

Knowledge of one defense precludes a person from asserting HDC status in

regard to all other defenses.
Superior Company draws a check payable to Ted. Uri makes a note payable to
Vital Finance Corporation. Primarily liable parties include:
Uri only.

Uri is a maker and makers have primary liability.

A drawer is primarily liable on an instrument.
false

A drawee is primarily liable on an instrument, and a drawer is secondarily liable.

Moe, the owner of National Sales Company, stores blank National checks in an
unlocked office drawer. Owen, an employee, forges Moe's signature on one of
the blank checks and indorses it to Payday Loans, Inc. With respect to Payday,
Moe:
may be liable if the storage of the checks facilitated the forgery.

With respect to Payday, Moe may be liable if the storage of the checks facilitated
the forgery.
Carl gets a $100 check as a gift from Donna. Carl crudely increases the amount
of the check to $1,000—an obvious forgery—and transfers it to Eagle
Computers, Inc., in exchange for a computer. Eagle deposits the check in its
bank account at First National Bank. HDCs of this check include:

Carl, Eagle, and First National.

Carl only.
Eagle and First National only.
none of these parties
none of these parties

There can be no subsequent holder because the instrument bears apparent

evidence of alteration.
A restrictive indorsement requires an indorsee to comply with certain instructions
regarding the funds involved.
true

For example, a restrictive indorsement such as "deposit only" restricts the

negotiation to a deposit in a bank.
State Bank receives a check drawn by Tricia. The check is received after the
established "cutoff" hour. Payment can be postponed without dishonor:
until the close of the next business day.

It may wait until the next business day.

Primary liability on a negotiable instrument is assumed by the:
maker
A person will not qualify for HDC protection if he or she is on notice that the
instrument being acquired:
is overdue.

A person will not qualify for HDC protection if he or she is on notice that the
instrument being acquired is overdue.
Holly writes a check on her account at InterBank to Jerry to pay a debt. Jerry
negotiates the check by indorsement to Kelly. Kelly can obtain payment of the
check from Jerry:
if InterBank dishonors the check and Kelly timely notifies Jerry.

There must be notice of dishonor or the indoser is discharged.

Transfer warranties attempt to impose liability on the wrongdoer or the party who
dealt most immediately with the wrongdoer.
true
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the
note to Lou who, in turn, indorses it to Mona, who then indorses it to Nat, the
present holder. Suppose that Mona pays Nat on the note. With timely notice to
the proper parties, Mona may collect payment on the note from:
Jake, Kim, or Lou.
Universal defenses defeat the claims of all holders.
true

Universal defenses (also called real defenses) are valid against all holders,
including HDCs and holders who take through an HDC.
A cashier's check is an instrument in which a bank is both the drawer and the
drawee.
true

A cashier's check is a draft with respect to which the drawer and drawee are the
same bank or branches of the same bank. The bank draws money against itself,
usually after someone has deposited the funds.
A blank indorsement converts a bearer instrument to an order instrument.
false

A blank indorsement converts an order instrument to a bearer instrument.

On a trade acceptance, the drawee is also the payee.
false

On a trade acceptance, the drawer is also the payee.

A certificate of deposit represents a loan by its owner to a bank.
true

A CD is an instrument containing an acknowledgment by a bank that a sum of

money has been received by the bank and a promise by the bank to repay the
sum of money.
Under the UCC, a holder takes an instrument for value if he or she has:

performed the promise for which the instrument was issued or transferred.
given an irrevocable commitment as payment for the instrument.
taken the instrument in payment of a preexisting claim.
all of these choices
all of these choices.

Under the UCC, a holder takes an instrument for value if he or she has
undertaken any of these actions.
Bruce acquires a series of installment notes that are all identified with the same
indebtedness. At the time of his acquisition, he learns that the maker defaulted
on one of the payments. Bruce is:
not an HDC.

He is not an HDC because he has noticed that one payment is overdue

Petra signs a check payable to Quincy, who indorses the back, gives it to
Regional Credit Union, and receives cash. The transfer of the check from Quincy
to the credit union is:
a negotiation.

The negotiation of the check to Quincy may have been in payment, but that is
irrelevant to negotiating a negotiable instrument.
All of the following are examples of personal defenses, except:

breach of contract.
extreme duress.
mental incapacity.
ordinary fraud
extreme duress
An unauthorized signature never binds the person whose name is forged.
false

The general rule is that an unauthorized signature is wholly inoperative and will
not bind the person whose name is signed or forged; however, there are two
exceptions to the general rule: 1) When the person whose name is signed ratifies
(affirms) the signature, 2) When the negligence of the person whose name was
forged substantially contributed to the forgery, a court may not allow the person
to deny the effectiveness of an unauthorized signature.
Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and
in good faith. Mia knows that Kris breached the contract underlying the note,
giving Liu a defense against payment. With respect to this note, Mia is:
an ordinary holder.

She has notice of a defense (breach of contract) so she cannot be an HDC.

An instrument is dishonored when its acceptance is refused.
true
Ewa signs an instrument unconditionally promising to pay to "First State Bank"
$5,000 with interest in Installments with the final payment due June 1, 2012. With
respect to this instrument, First States Bank is:
the payee.

Ewa is the Maker.

A discharge in bankruptcy will defeat the claims of an HDC.
true
A discharge in bankruptcy is a real defense on an instrument, regardless of the
status of the holder, because the purpose of bankruptcy is to settle all of the
insolvent party's debts.
A draft is an unconditional written order that involves three parties.
true.

In the case of a draft, the depositor (Drawer) unconditionally orders the bank
(Drawee/Payor) to draw money out of an account to pay the Payee.
Holly writes a check on her account at InterBank to Jerry to pay a debt. Jerry
negotiates the check by indorsement to Kelly. With respect to payment of the
check, Holly is:
secondarily liable.
Owen is a holder of a promissory note obtained from Purchase Money,
Incorporated. Regarding the defenses against payment of the note to which
Purchase Money is subject, Owen, as an ordinary holder, is subject to:
the same defenses.

Any defenses against payment that can be raised against the transferor of an
instrument can be raised against the subsequent holder.
If a note is payable in thirty days, payment is due by midnight on the thirtieth day.
true
An instrument is not defective because it has been previously dishonored.
false.

Such notice also makes it impossible for the transferee to be an HDC.

Intentional destruction of a negotiable instrument cancels it.
true

Intentional cancellation by the holder of an instrument discharges the liability of

all parties.
Jen makes a gift of a check to Kilroy who takes it in good faith and without notice
of any claim, defense, or defect. With respect to this check, Kilroy is:
an ordinary holder.
Doug writes a check for $100 payable to Eve on his account at First State Bank.
The bank is:
a drawee.

Doug is a drawer who orders the bank to draw the funds

Which is the following is not a restrictive indorsement?

A blank indorsement
A conditional indorsement
An indorsement prohibiting further indorsement
A trust indorsement
A blank indorsement
An authorized agent may be personally liable on an instrument if the agent does
not sign his or her own name.
false
An authorized agent may be personally liable on an instrument if the agent does
sign his or her own name.
Perfect Roofing Company receives a check from Quik Mart for fixing its roof, and
indorses the check to Repair Supplies, Inc. (RSI) for materials previously
supplied. Sam, RSI's owner, gives the check to Todd as a gift. In this situation,
the party who is not an HDC of the check but who acquires HDC rights under the
shelter principle is:
Todd

Sam is a holder that gave value; it fixed the roof and is an HDC.
The dishonor of an instrument relieves secondary parties of liability.
false.

The dishonor of an instrument does not relieve secondary parties of liability.

Alpha Company gives a $3,000 promissory note to Best Delivery Service to
deliver a load of computer chips to Alpha's plant. The chips are contaminated
during transit, and are useless to Alpha on delivery. Alpha's best defense to
payment on the note is:
breach of warranty.

The delivery of the chips is nonconforming, so there is a breach of warranty

under the contract, that they are not fit.
A certificate of deposit is a type of draft.
false

A certificate deposit is a type of note, not a draft.

Parties are secondarily liable on a negotiable instrument only if:

the instrument is properly and timely presented.

the instrument is dishonored.
timely notice of dishonor is given to the secondarily liable party.
all of these choices.
all of these choices
An indorsement on a negotiable instrument in which the indorser disclaims any
contract liability on the instrument is referred to as a:
qualified indorsement.

An indorsement on a negotiable instrument in which the indorser disclaims any

contract liability on the instrument is referred to as a qualified indorsement.
Alpha Office Properties signs a check payable to Beta Landscape Design, Inc.,
drawn on Alpha's account at City Bank and dated June 1. Beta indorses the
check to Delta Lawn Care Corporation. To hold Alpha secondarily liable, Delta
must present the check for payment within:
thirty days of its date.
The holder of a domestic check must present the check for payment or collection
within thirty days of its date to hold the drawer secondarily liable.
Edie is the payee of a bearer instrument—a promissory note in the amount of
$10,000. Frank offers to irrigate Edie's ranch next week in exchange for the note.
Edie agrees and delivers the note to Frank. Frank is:
not an HDC, because he did not yet give value for the instrument.

Frank is a holder because he is in possession of a bearer instrument, but he did

not give value so he cannot be an HDC.
On the back of a check payable to Nero, he writes "Pay to Odell, without
recourse" and signs it. This:
relieves Nero of liability on the check.

The qualified indorsement qualifies payment and limits the warranty liability.
Dandy Furniture Store borrows $100,000 at 6 percent interest from Easy Loan
Company and signs a promissory note for that amount. Easy changes the
amount of the note to $120,000 and increases the rate to 8 percent. Easy
materially altered the note when it changed:
the amount and the interest rate.

Easy materially altered the note when it changed the amount and the interest
rate.
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the
note to Lou who, in turn, indorses it to Mona, who then indorses it to Nat, the
present holder. Nat properly presents the note to Jake for payment, but Jake
dishonors it. With timely notice to the proper parties, Nat may collect payment on
the note from:
Kim, Lou, or Mona.

With proper notice Nat may collect from parties who previously indorsed the note
Nina wants to transfer a check to Opie. The check is not defective if it:
has been previously honored.
Vladimir negotiates a bearer instrument to Wendy by:
delivery

Assignment is usually linked to contract rights, not bearer paper. Delivery is a

sufficient negotiation for a bearer instrument.
Diner's Café receives daily shipments of dairy products from Eagle Dairy, Inc.
The price is $900 per month. Diner's pays for one month and an additional five
months in advance with a note for $5,400. One month later, Eagle sells the note
to First National Bank for $5,100. At the time the note is sold, Eagle is:
an HDC for $900.

The note is given part for a future promise to pay for 5 months or $4,500. Eagle
has only given one month of dairy products as value.
A person who receives an instrument as a gift normally possesses the rights of
an HDC.
false

A person who receives an instrument as a gift does not possess the rights of an
HDC.
An unauthorized signature binds the person whose name is forged.
false

An unauthorized signature does not bind the person whose name is forged
because all signatures must be genuine for title.
Ann is the maker of a $1,000 promissory note in favor of Bob. Bob indorses the
note to Cody who, in turn, indorses it to Dru, the present holder. If the note is
dishonored, the party entitled to recover payment from Cody is:
Dru.

The maker, Ann, signed the note before Cody so she has no recourse against a
subsequent indorser.
Juan Cortez writes a check payable "to the order of Sue and Jason Fisher." In
order to be negotiated, this check requires the indorsement of:
both Sue Fisher and Jason Fisher.

If Juan Cortez writes a check payable "to the order of Sue and Jason Fisher," in
order to be negotiated, this check requires the indorsement of both Sue Fisher
and Jason Fisher
One who transfers an instrument for consideration makes all of the following
warranties to all subsequent transferees and holders who take the instrument in
good faith, except:
the transferor is not entitled to enforce the instrument.

This warranty is made. The transferor does not warrant that he or she is not
entitled to enforce the instrument.
GR8 Products, Inc., warrants its goods to be free of defects. If Heck issues an
instrument to obtain goods from GR8 that prove defective, Heck can avoid
paying on the instrument:
whether it is a check or a note.
All of the following are examples of universal defenses, except:

fraud in the execution.

lack of consideration.
mental incapacity.
forgery.
lack of consideration.
An instrument is not defective simply because it is overdue.
false

An instrument is defective because it is overdue

An alteration of an instrument is material if it changes the terms between two
parties in any way.
true
To properly present a draft for payment, the holder must present it to the drawer.
false

Ultimately, the holder must present it to the drawee bank, although it may go
through intermediary financial institutions.
When a person causes an instrument to be issued to a payee who will have no
interest in the instrument, the payee is called a(n):
fictitious payee.

Forgery breaks the chain of title and no subsequent possessors can qualify as
holders because there has been no valid order by the payee (no title). A forger's
signature is treated as his own. The correct answer here is a fictitious payee.

Drug testing by private employers is permitted

True
There are no exceptions to the employment -at-will doctrine
False
Employers are required to establish retirement plans for their employees.
False
Federal wage-hour laws cover all employers engaged in interstate commerce.
True
Whistleblower statutes protect employers from workers' disclosure of the
employer's wrong doing.
False
Under federal law, employers can monitor employees' personal communications.
False
Management serves as the representative of workers in bargaining with a union.
False
An employer must consider all job applicants-citizen and noncitizen- in deciding
whom to hire
False
Similarity of workers' jobs is a factor in determining which workers are to be
represented by a union.
True
An immigrant employees's ability to stay in the US and to switch jobs here is
limited.
True
Steel Worx Inc., refuses to pay its workers for time spent on union activities This
Violates?
No federal labor law
National Workers Union Represents the employees of Office Services Company
Inc. NWU calls an economic strike, and Offices hires replacement workers. After
the strike, the replacement workers?
Must be terminated and the former strikers must be rehired.
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Reddy Power Corporations provides health insurance for its employees. When
Reddy closes one of its offices and terminates the employees, the employees
Can continue their health insurance at their expense.
Michelle, an employee at Neverquit Company, is covered by federal overtime
provisions These rules only apply after an employee has worked more than?
Forty Hours in a week
Millions Mining Company is a private employer that wants to test its employees
for drug use. This testing may?
Be limited or prohibited under a state constitution, statute, or court decision.
Mosul, Natomi, and Omar apply to work for Precision Engineering, Inc. These
individuals' identities and eligibility to work must be verified by?
The employer
Delta Aircraft Company a U.S. employer, may hire Ewan, a noncitizen, if Ewan
is?
A lawful permanent resident of the U.S.
Omega Refining Oil Corporation wants to hire Parfez, who has certain special
skills to fill a technical position. To hire Parfez, Omega must petition
CIS
During a union election campaign at Wayward Shipping Corporation, Wayward
may not?
Threaten employees with the loss of their jobs if the union wins the election
If you write a check to pay for a sweater that you buy, the check is:
a negotiable instrument.
Which of the following UCC articles deals with negotiable instruments?
Article 3
You write a check to pay for your haircut. In this transaction, who is the drawee?
Your bank is, because it must pay the check.
The UCC requires that HDCs take instruments in good faith. This means that:
the holders must have acted honestly and observed all reasonable commercial
standards of fair dealing.
An HDC has notice that an instrument is defective:
when he has actual notice of a defect.
Anyone who does not qualify as an HDC, but who derives her title through an
HDC, can acquire the right and privileges of an HDC. This principle is known as:
the shelter principle.
What are the two kinds of signature liability associated with negotiable
instruments?
Primary and secondary
Which of the following is not a transfer warranty?
The transferor may not enforce the instrument.
One universal defense to liability for payment on a negotiable instrument is:
. forgery.
In the event that a conflict arises between the provisions of Article 3 and Article 4
of the UCC:
Article 4 controls
With a cashier's check, which party is both the drawer and the drawee?
The bank
Lynn loses three checks from her checkbook: #536, #537, and #538. She
requests and executes a written stop-payment order with her bank, ordering the
bank not to pay these checks. Three months later, her bank pays check #537 in
the amount of $1,500, causing Lynn's account to be overdrawn. In this situation:
. the bank is liable.
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When a customer writes a check on her account, what kind of legal relationship
arises between the bank and the customer?
An agency relationship
A stale check is one that:
was not presented for payment within six months of its date.
A drawer may be liable for a forged check if:
the drawer's negligence contributed to the loss.
One of your main duties as a bank's customer is:
to examine bank statements and report any forged signatures or indorsements
promptly.
The bank on which a check is drawn is known as:
the payor bank.
The Electronic Fund Transfer Act states that you will only be liable for $50 if
someone steals your debit card, as long as:
you report the theft within two days of discovering it.
In 2001, the National Conference of Commissioners on Uniform State Laws
proposed to the states for adoption a new uniform law that would subject online
and e-money services to the same regulations that apply to other, traditional
financial service businesses. This law is known as:
the Uniform Money Services Act.
For an ordinary holder to become an HDC, the person from whom the holder
acquired a negotiable instrument must have acted in good faith.
False
To be negotiable, an instrument must include an unconditional promise to pay.
True
To be negotiable, an instrument must indicate an account to be charged.
False
Quincy signs a check payable to Regal Investors, Inc., and gives it to Regal,
leaving the amount blank but authorizing Regal to fill in the check for $1,000.
Regal fills in $1,500 and negotiates the check to State Bank, to whom Regal
owes $1,500. State Bank, an HDC, can enforce the check for
$1,500.
Rubber stamp signatures are not legally binding signatures.
False
Ada is the maker of a note, on which Bart is secondarily liable. Cash & Credit
Company (C&C) is the current holder of the note. Bart will be obligated to pay the
note if
Ada defaults on the note.
Ilsa wants to negotiate a bearer instrument in her possession to Jay for an order
instrument in Jay's possession. Indorsements are required to negotiate
order instruments only.
A check is a draft.
True
Fact Pattern 14-2
Holly writes a check on her account at InterBank to Jerry to pay a debt. Jerry
negotiates the check by indorsement to Kelly.

Refer to Fact Pattern 14-2. Kelly can obtain payment of the check from Jerry
if InterBank dishonors the check and Kelly timely notifies Jerry.
A promissory note cannot be a negotiable instrument.
False
In a bankruptcy proceeding, if a discharge is denied to a debtor, the creditors are
denied the distribution of the debtor's assets.
False
Fact Pattern 16-2
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds.

Refer to Fact Pattern 16-2. If First National insists that Carl sign the loan
application, making himself personally liable for payment only if Beta defaults,
Carl will be
a guarantor only.
All student loans are dischargeable in bankruptcy.
False
Fact Pattern 16-3
Dina asks Edie to co-sign a credit application so that she can borrow money and
buy a sport utility vehicle from Finest Quality Motors.

Refer to Fact Pattern 16-3. If, after the loan agreement is signed, Dina agrees to
a higher rate of interest without telling Edie, then Edie is
***NOT- liable at the higher rate of interest.
Response Feedback:
Reference eBook page 491.
Before filing for bankruptcy, a consumer-debtor must receive information about
credit counseling.
True
Jack files a bankruptcy petition under Chapter 7. Among his debts are support
owed to his ex-wife Kayla, overdue state income taxes, unpaid local traffic fines,
and amounts representing student loans owed to Loyal University. The debts
most likely to be discharged if their payment imposes undue hardship on Jack
include the claims for
student loans.
Fact Pattern 16-3
Dina asks Edie to co-sign a credit application so that she can borrow money and
buy a sport utility vehicle from Finest Quality Motors.

Refer to Fact Pattern 16-3. If Edie signs the application but fails to condition her
signature on Finest's agreement to pursue its legal remedies against Dina before
looking to her, then Edie is
***NOT- neither a guarantor nor a surety.
Response Feedback:
Reference eBook page 490.
A petition for a discharge in bankruptcy under Chapter 7 may be filed by
Holly, an investment adviser.
Before obtaining a discharge in bankruptcy, a consumer-debtor must attend a
consumer education course.
True
A guarantor becomes primarily liable only when a debtor cannot pay a debt.
True
An oral stop payment order is valid for fourteen days.
True
Deferred posting is the process of dishonoring checks for insufficient funds.
False
A bank's duty to honor its customers' checks is absolute.
False
A bank is never liable for failing to honor a customer's stop-payment order.
False
Under the UCC, a bank is "a person engaged in the business of banking."
True
E-Bank, an online financial institution, gives financial information about Paula and
other customers to a federal agency without the customers' permission. E-Bank
may be liable under
***NOT- the Financial Services Modernization Act or
the Uniform Electronic Transactions Act.
Response Feedback:
Reference eBook page 469.
John writes a check to Kay as payment for a DVD player but soon discovers the
player is broken. He goes to the drawee bank and orally authorizes Larry, a bank
officer, to stop payment on the check. This order is valid for
fourteen days.
After Ben's death, his heir Cathy asks his secretary Edie to notify Ben's bank,
First National Bank. On being notified, First National can pay or certify checks
drawn by Ben, on or before the date of his death, unless Cathy asks to stop all
payments, for
ten days after the date of death.
A check orders a bank to pay a fixed amount of money on demand.
True
Fact Pattern 15-2
Ruth opens an account with State Bank under an agreement in which the bank
reserves the right to charge the account for any item returned due to its
unauthorized alteration.

Refer to Fact Pattern 15-2. The agreement between Ruth and State Bank
is in accord with the UCC.
Tom files a suit against the state of Utah, claiming that a Utah state law violates
the commerce clause. The court will agree if the statute
***NOT- promotes the public order, health, safety, morals, or general welfare.
Response Feedback:
Reference eBook page 15.
Courts do not depart from precedents.
False
Whether a law is constitutional depends on its source.
False
A New Hampshire state law that directly conflicts with a federal law is invalid
under
the supremacy clause.
A Metro City ordinance allows only a few street vendors to operate in certain
areas, for the purpose of reducing traffic. A court would likely hold this ordinance
to be
constitutional under the equal protection clause.
Equity is a branch of unwritten law that seeks to supply remedies other than
damages.
True
Under the supremacy clause, when there is a direct conflict between a federal
and a state law, both laws are given equal effect.
False
Ann is a nineteen-year-old waiter and Carl is a twenty-three-old bartender at
Bob's Bar & Café. One night after work, Ann asks Carl to serve her alcoholic
beverages. In this situation, under the principles discussed in "A Sample Court
Case," Nunez v. Carabba's Italian Grill, Inc., Bob's owes Ann
the same duty of care that Bob's owes to a minor.
A Rhode Island state statute imposes a prison term, without a trial, on all street
vendors who operate in certain areas. A court would likely hold this statute to be
unconstitutional under the due process clause.
A law that restricts a fundamental right violates substantive due process
regardless of the type of state interest that the law "promotes."
False
Fact Pattern 16-4
Mary's home is in a state that has a $30,000 homestead exemption. Mary
defaults on a $60,000 debt that she owes to National Mortgage Company. Mary's
home is sold at auction for $80,000.

Refer to Fact Pattern 16-4. If National recovers less than it is owed, it can realize
the difference from
***NOT- any property that Mary owns.
Response Feedback:
Reference eBook page 491.
Personal possessions are not usually included in state exemption statutes.
False
Cody is the sole proprietor of Diners Cafe, which owes debts in an amount more
than Cody believes he and Diners can repay. The creditors agree that liquidating
the business would not be in their best interests. To stay in business, Cody could
file for bankruptcy under
Chapter 11 or 13.
A financing statement is effective for five years from the date of filing.
True
Jack files a bankruptcy petition under Chapter 7. Among his debts are support
owed to his ex-wife Kayla, overdue state income taxes, unpaid local traffic fines,
and amounts representing student loans owed to Loyal University. The debts
most likely to be discharged if their payment imposes undue hardship on Jack
include the claims for
student loans.
Fact Pattern 16-2
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds.

Refer to Fact Pattern 16-2. Carl is the only salaried employee of Beta. Generally,
for a guaranty contract between First National and Carl to be enforceable, it
must be in writing.
Quinn borrows $3,000 in the form of unsecured cash advances on a Reliable
Corporation credit card. Quinn later borrows $5,000 from Stable Loan Company,
which perfects its security interest in the camping trailer Quinn buys with the
$5,000. When Quinn files a Chapter 7 petition in bankruptcy, between these
lenders
***NOT- neither Reliable nor Stable are entitled to payments.
Response Feedback:
Reference eBook page 501.
An instrument "payable to bearer" is not negotiable.
False
Fact Pattern 14-1
Alpha Office Properties signs a check payable to Beta Landscape Design, Inc.,
drawn on Alpha's account at City Bank and dated June 1. Beta indorses the
check to Delta Lawn Care Corporation.

Refer to Fact Pattern 14-1. To hold Beta secondarily liable, Delta must present
the check for payment within
***NOT- six months of its date.
Response Feedback:
Reference eBook page 427.
Finest Business Company issues an instrument in favor of General Supplies, Inc.
For the instrument to be negotiable, it need not
recite the consideration given in exchange for a promise to pay
On behalf of Financial Investments, Inc., Gail signs an instrument promising to
pay $5,000 in gold to High Funds, Inc., on April 15. This instrument is
***NOT-negotiable.
Response Feedback:
Reference eBook page 416.
Moe, the owner of National Sales Company, stores blank National checks in an
unlocked office drawer. Owen, an employee, forges Moe's signature on one of
the blank checks and indorses it to Payday Loans, Inc. With respect to Payday,
Moe
may be liable if the storage of the checks facilitated the forgery.
A notation on an instrument that it is "negotiable" is sufficient to render it
negotiable.
False
When state regulations impinge on interstate commerce, commerce must yield to
the regulations.
False
Kurt is a judge hearing the case of Local Co. v. Macro Corp. Applying the
relevant rule of law to the facts of the case requires Kurt to find previously
decided cases that, in relation to the case under consideration, are
as similar as possible.
Common law is a term for the law that is known to most of us.
False
A New Hampshire state law that directly conflicts with a federal law is invalid
under
the supremacy clause.
Congress enacts the Tight Money Act (TMA) of 2006 to ban "major business
entities" from making political contributions that individuals can make. A court
would likely hold the TMA to be
an unconstitutional restriction of speech.
If a provision in the Florida state constitution conflicts with a provision in the U.S.
Constitution
the U.S. Constitution takes precedence.
A law that restricts a fundamental right violates substantive due process
regardless of the type of state interest that the law "promotes."
False
A federal form of government is one in which sovereign power is vested entirely
in a central governing authority.
False
Tom files a suit against the state of Utah, claiming that a Utah state law violates
the commerce clause. The court will agree if the statute
imposes a substantial burden on interstate commerce.
Uniform laws apply in all states, including those in which the laws have not been
adopted.
False
When a bank certifies a check, it immediately charges the drawer's account.
True
On Monday, Eve deposits in her account at First State Bank a local check for
$500. After 5:00 p.m. on Friday, Eve can withdraw no more than
$500.
A bank has no right to charge a customer's account for the amount of a stale
check.
False
A customer has sixty days from the date of receipt of a statement of an electronic
transfer to notify the financial institution of any errors.
True
To transfer checkbook dollars among different banks, each bank acts as an
agent of collection for its customer.
True
Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast
Cash, Inc., for payment. If the check is not backed by sufficient funds, Dora may
be prosecuted for
fraud.
When payment of debt is guaranteed by personal property owned by the debtor
or in which the debtor has a legal interest, the transaction is known as:
a secured transaction.
In the context of secured transactions, attachment:
gives the creditor an enforceable security interest in the collateral.
Perfection is the legal process by which secured parties:
protect themselves against the claims of third parties who want their debts
satisfied out of the same collateral.
A purchase-money security interest (PMSI) is created when:
a seller or lender extends credit to the buyer for part or all of the purchase price
of consumer goods.
One of the basic remedies for default is:
execution and levy.
LaVon contracts with Phil to remodel and retile Phil's bathroom. LaVon finishes
the job and gives Phil a bill for $14,000 for labor and materials. Phil refuses to
pay. In this case, LaVon may seek:
a mechanic's lien.
What are the two goals of bankruptcy law in the United States?
To give debtors a fresh start and to provide equitable treatment to creditors
competing for debtor assets.
The type of bankruptcy proceeding used most commonly by corporations is a
reorganization under:
Chapter 11.
One of the advantages of Chapter 13 repayment plans is that:
they are less expensive and less complicated than reorganization proceedings or
liquidation proceedings.
Chapter 12 of the Bankruptcy Code is aimed at helping which group?
Family farmers

To purchase office supplies for her medical clinic, Becky executes a draft in favor
of Sonya. A draft is
an unconditional written order to pay money
As a part of a loan to pay for improvements to her restaurant, Sam executes a
negotiable instrument in favor of Tine. They are the only parties to the
instrument. A negotiable instrument that only has two parties is
a promissory note
Diner's Restaurant issues an instrument in favor of general supplies, inc. for the
instrument to be negotiable, it need not
recite the consideration given in exchange for a promise to pay
Digital Associates Inc. signs a check payable to its employee Ed and gives it to
him. Ed endorses a check to Friendly Finance Co to pay an installment on debt.
Friendly Finance Co. endorses the check to Great Bank. Great Bank endorses
the check to First Bank. The check is issued when
digital signs the check and gives it to Ed
Eve possess an instrument that is payable to bearer. She loses it. Fred finds it.
On this instrument Fred may
collect payment
Mike receives a payroll check from National computer Systems, inc. and
endorses it by singing his name on a back of the check. This is
blank endorsement
All mart discount store receives a check from a customer and endorses it for
deposit only. This is a
Qualified Endorsement
City investment company signs a check payable to downtown lenders, inc. to buy
a promissory note executed by Eagle Corporation. This check
Satisfies the consideration requirement for HDC status
In good faith and for value, Carol receives from Dick a negotiable bearer
instrument. Carol does not know that dick stole the instrument. Carol is
A Holder in Due Course (HDC), because the good faith requirement applies only
to the holder.
Donna writes a check to earl dawn on Donna's account at First National Bank.
Earl presents the check to the bank for payment, and the bank accepts the
check, the bank is
primarily liable for payment
Two-party commercial paper is also known as
a note
The maker of a certificate of deposit is
the bank
What is a Certificate of Deposit?
a special type of Note whereby the Maker is a Bank and the Bank acknowledges
receipt of the sum of money
What is a Draft?
Three-party commercial paper including Bills of Exchange and Checks whereby
the Drawer orders the Drawee to pay money to a third party (the "Payee" or
"Bearer")
What are the requisites of Negotiability?
1. In writing, signed by the Maker or Drawer.
2. Unconditional Promise or Order to Pay.
3. Certain Sum or Fixed amount of Money.
4. Payable on Demand or at a Definite Time.
5. Contains Words of Negotiability.
What are the functions of an Endorsement?
1) Negotiate the instrument;
2) Restrict the payment under the instrument;
3) Incur an endorser's liability on the instrument.
17. Name 3 categories of Endorsements
1 Special
2 Blank
3 Qualified or restrictive
18. What are the differences
Rochester Roofing, Inc. replaced the leaking roof of a home pursuant to contract
with the homeowner, but the homeowner did not pay the roofing firm. Rochester
Roofing, Inc. has a statutory lien on the real property to ensure payment for work
performed and materials furnished. This kind of lien is called:
a mechanic's lien.
An agreement between a debtor and a creditor in which the debtor voluntarily
agrees to pay a debt dischargeable in bankruptcy is called a:
reaffirmation agreement.
A provision of the Bankruptcy Code that allows a court to confirm a debtor's
Chapter 11 reorganization plan, even though only one class of creditors has
accepted it, is called a:
cram-down provision.
Samuel has fallen seriously behind in his debts, including his child-support
payments due Rebecca, his former wife, for their son, Nathan. If Samuel files for
Chapter 7 bankruptcy, his debt for the support of Nathan:
will not be discharged due to laws governing exceptions to discharge.
Samuel and Rebecca divorced, and the court ordered that Samuel pay a certain
sum in child support each month to Rebecca for the support of their son, Nathan.
Samuel fell behind in his payments. In order to ensure that money would be
coming in regularly to Rebecca and Nathan, the judge entered an order directing
Samuel's employer to pay a certain portion of his wages to Rebecca and Nathan.
This kind of court order is known as:
a garnishment
In the context of judicial liens, a court-ordered seizure and taking into custody of
property prior to the securing of a judgment for a past-due debt is referred to as:
an attachment.
In Chapter 11 bankruptcy, a reorganization plan is established to conserve and
administer the debtor's assets in the hope that the business can eventually:
return to successful operation and solvency.
An involuntary bankruptcy occurs when a petition to initiate bankruptcy
proceedings is filed by:
the debtor's creditors
In the context of bankruptcy proceedings, the kind of bankruptcy in which the
debtor turns all nonexempt assets over to a trustee, who sells those assets to
pay creditors, is called:
a liquidation.
The sale of all of the nonexempt assets of a debtor and the distribution of the
proceeds to the debtor's creditors is known as:
liquidation.
A court's order, issued after a judgment has been entered against a debtor,
directing the sheriff to seize and sell any of the debtor's nonexempt real or
personal property is:
a writ of execution.
A law permitting a debtor to retain the family home, either in its entirety or up to a
specified dollar amount, free from the claims of unsecured creditors or trustees in
bankruptcy, is the:
homestead exemption.
The chapter of the Bankruptcy Code that provides relief to family farmers and
family fishermen is:
Chapter 12.
The chapter of the Bankruptcy Code that provides for the "Adjustment of Debts of
an Individual with Regular Income" is:
Chapter 13.
Among those eligible for a Chapter 13 repayment plan are:
people who live on fixed pensions.
b. partners in a business partnership.
c. All of these choices are correct.
d. owners of a corporation.
In bankruptcy proceedings, all of the debtor's interests in property currently held,
wherever located, together with certain jointly owned property, property
transferred in transactions voidable by the trustee, proceeds and profits from the
property of the estate, and certain property interests to which the debtor
becomes entitled within 180 days after filing for bankruptcy is called the:
estate in property
Jarod started a music promotion business right out of college, but when the
recession hit, could not make it work, and so plans to file for bankruptcy. He is
concerned that he will have to sell everything he owns, including his dog, Buster.
If you were advising Jarod about personal property that is usually exempt from
bankruptcy, which of the following would you tell him are exempt?
All of these choices are correct
Unlike a mechanic's lien, an artisan's lien is:
possessory.
A plan of rehabilitation by repayment must provide for:
All of these choices are correct.
The Bankruptcy Reform Act of 2005 specifies that within 180 days prior to filing a
petition in bankruptcy, debtors must:
receive credit counseling from an approved nonprofit agency
Under Chapter 7 bankruptcy, the debtor must pay
no debts remaining after liquidation, with certain exceptions.
John had filed for Chapter 7 bankruptcy after transferring a vacation home he
owned to his brother, so that he would not have to list it as an asset in the
bankruptcy proceeding, with the understanding that after the bankruptcy was
completed, his brother would transfer the property back to him. If John's creditors
learn of this scheme, they will most likely file:
an objection to discharge.
In Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in
possession of the business and to continue business operations is a:
debtor in possession
A legal process used by a creditor to collect a debt by seizing property of the
debtor (such as wages) that is being held by a third party (such as the debtor's
employer) is referred to as:
a garnishment.
In some instances, creditors may prefer a workout to bankruptcy proceedings
because a workout can be:
All of these choices are correct.
In the Bankruptcy Code, the chapter that provides for liquidation proceedings is:
Chapter 7.
Chapter 13 of the Bankruptcy Code may be used by:
individuals.
A court's order, issued prior to a trial to collect a debt, directing the sheriff or
other public officer to seize nonexempt property of the debtor, is called:
a writ of attachment.
lien Corporation
A designation in the U.S. for a corporation formed in another country but doing
business in the U.S.
Articles of Incorporation
The document filed with the appropriate governmental agency, suavely secretary
of state, when a business is incorporated; state statues usually prescribe what
kind of information must be contained in the articles of incorporation
Benefit Corporation
A for-profit corporation that seeks to have a material positive impact on society
and the environment. This new business form is available by statue in a growing
number of states
Bond
A certificate that evidences a corporate (or government) debt. It is a security that
involves no ownership interest in the issuing entity
Bond Indenture
Written agreement between a bond issuer and the bondholders, normally
consisting of a specified interest rate, maturity date, and other terms; sometimes
simply called indenture
Bylaws
A set of governing rules adopted by a corporation or other association
Close Corporation
A corporation whose shareholders are limited to a small group of persons, often
only family members. The rights of shareholders of a close corporation are
usually restricted regarding the transfer of shares to others
Commingle
To put funds or goods together into one mass so that the funds or goods are so
mixed that stye no longer have separate identities. In corporate law, if person &
corporate interest are commingles to the extent that corporation has no separate
identity, a court may "pierce the corporate veil" and expose the shareholders to
personal liability
Common Stock
Shares of ownership in a corporation that give the owner of the stock a
proportionate interest in the corporation with regard to control, earnings, and net
assets; shares of common stick are lowest in priority in respect to payment of
dividends and distribution of the corporation's assets of dissolution
Dividend
A distribution to corporate shareholders of corporate profits or income, distributed
in proportion to the number of shares held
Domestic Corporation
In a given state, a corporation that does business in, and is organized under the
laws of, that state
Foreign Corporation
Corporation located and incorporated in one state and conducting business in
another
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Holding Company
Company in whose business activity is holding shares in another company
Pierce the Corporate Veil
To dire gad the corporate entity, which limits the liability of shareholders, and
hold the shareholders personally liable for a corporate obligation
Preferred Stock
Classes of stock that have priority over common stock as to payment of
dividends and distribution of assets on the corporation's dissolution
Private Equity Capital
Equity capital that is not quotes on the public exchange. Funds invested in a
private company in exchange for ownership interest in that company. Capital for
private equity is raised from retail and institutional investors, and can be used to
fund new technologies, expand working capital with an owned company, make
acquisitions, or to strengthen a balance sheet
Public Corporation
A corporation owned by a federal, state, or municipal governments-- not be
confused with publicly held corporation
Publicly Held Corporation
A corporation for which shares shares of stock have been sold to the public
Retained Earnings
The portion of a corporation's profits that has not been paid out as dividends to
shareholders
S corpoation
A close business corporation that has met certain requirements as set of by the
Internal Revenue Code and thus qualifies for special income tax treatment.
Essential, an S corporation is taxed the same as a partnership, but its owners
enjoy the privilege of limited liability
Shareholders
One who purchases shares of a corporation's stock, thus acquiring an equity
interest in the corporation
Securities
Generally, corporate stocks and bonds. A security may also be a note,
debenture, stock warrant, or any other document given as evidence of an
ownership interest in a corporation or as promise of repayments by a corporation
Stock
An equity (ownership) interest in a corporation, measure in units of shares
Ultra Vires
A latin term meaning "beyond the powers"; in corporate law, acts of
incorporations that are beyond its express and implied power to undertake
An agreement between shareholders can restrict the transfer of a close
corporation's stock.

a. True
b. False
a. True
Stephan incorporates his scientific products business as Tech Supply, Inc.
Unless the articles of incorporation state otherwise, Tech Supply most likely has

a. a one-year, nonrenewable existence.

b. a finite, yet-to-be-determined existence.
c. a one-year, renewable existence.
d. perpetual existence.
d. perpetual existence.
Brightbox, a DVD rental company, would like to change its corporate status to
that of an S corporation to avoid income taxes at the corporate level. To qualify,
Brightbox must

a. be located in the United States.

b. have more than one class of stock.
c. be a non-profit corporation.
d. have more than one hundred shareholder
a. be located in the United States.
Retail Outsourcing, Inc., issues bonds. Bonds

a. are sometimes referred to as fixed-income securities.

b. are issued by businesses only.
c. feature voting rights.
d. require periodic interest payments from their owners.
a. are sometimes referred to as fixed-income securities.
Equestrian Stables Corporation's articles list an incorrect address for its
incorporator. Under this circumstance, Equestrian Stables is most likely

a. a de facto corporation.
b. a corporation by estoppel.
c. a de jure corporation.
d. ultra vires.
c. a de jure corporation.
Venture capital is capital provided to new business ventures by professional,
outside investors.

a. True
b. False
a. True
Ring Tone Phones, Inc., is a corporation. Ring Tone's implied powers enable it to

a. declare dividends.
b. borrow funds within limits, extend credit, and make charitable contributions.
c. amend the articles of incorporation.
d. bring a derivative suit.
b. borrow funds within limits, extend credit, and make charitable contributions.
Erin is a shareholder in Far East Expeditions. As a shareholder, Erin

a. is the founder of Far East Expeditions.

b. has no say in the election of Far East Expeditions's board of directors.
c. is liable for all the debts of Far East Expeditions.
d. owns shares of stock in Far East Expeditions.
d. owns shares of stock in Far East Expeditions.
In the absence of express constitutional, statutory, or other provisions, a
corporation has no implied powers.

a. True
b. False
b. False
Painless Dental Equipment Company is incorporated in Colorado. In Wyoming,
Painless is

a. a non-entity.
b. a foreign corporation.
c. an alien corporation.
d. a domestic corporation.
b. a foreign corporation
Bonds represent the borrowing of funds by firms.

a. True
b. False
b. True
Securities generally do not include any documents evidencing corporate
ownership or debt.

a. True
b. False
b. False
A corporation has perpetual existence unless the articles of incorporation state
otherwise.

a. True
b. False
a. True
Preferred stock is an equity security with preferences.

a. True
b. Flase
a. True
The Revised Model Business Corporation Act gives a close corporation less
flexibility in determining its rules of operation.
a. True
b. False
b. False
Neci and Olwen want to form and do business as a corporation—Pastries & Pies
Inc. A corporation is a legal entity created and recognized by
as a "person" and it enjoys many of the same rights of privileges under state and
federal law that U.S. citizens enjoy
Deepwater Dredging & Excavation holds itself out to others as being a
corporation but makes no attempt to incorporate. Estuary Marina signs a contract
with Deepwater that is not performed. Estuary Marina files a suit against the firm.
The court will likely hold that Deepwater is
a Corporation by Estoppel
The state can suspend the entity's corporate status until the taxes are paid or
even dissolve the corporation for failing to pay taxes.

a. True
b. False
a. True
In corporate law, acts of a corporation that are beyond its express or implied
powers are de facto or de jure acts.

a. True
b. False
b. False
Qiara is a holder of preferred stock in Rio Grande Irrigation & Development, Inc.
Qiara has priority over holders of Rio common stock as to
Dividends and Distributions of assets upon dissolution of the company
The alter-ego theory is applied when a corporation is so dominated and
controlled by an individual or group that the separate identities of the person (or
the group) and the corporation are no longer distinct.

a. True
b. False
a. True
Memphis Music Makers Inc.'s stated purpose is to sell musical instruments. If
chief executive officer Neal contracts with Open Season Firearms in Memphis
Music's name to sell a shotgun, he has likely committed

a. an ultra vires act.

b. a de facto act.
c. a de jure act.
d. a legal act.
a. an ultra vires act.
(T/F) In The Coca-Cola Co. v. The Koke Co. of America, the United States
Supreme Court upheld an injunction prohibiting competing beverage companies
from calling their products "Koke".
True
(T/F) An applicant cannot register a trademark on the basis of an intention to use
the mark in commerce.
False
(T/F) A generic term is not protected under trademark law unless it acquires a
secondary meaning.
False
(T/F) A patent cannot be obtained for software
False
(T/F) In determining whether a use of copyrighted work is infringement under the
"fair use" doctrine, the least important factor is the effect of the use on the market
for the work.
False
(T/F) Loading a file into a computer's random access memory constitutes the
making of a "copy" for purposes of copyright law.
True
Jill develops a new espresso machine, which she names "Quik Shot." She also
writes the operating manual to be included with each final product. Jill could
obtain trademark protection for
the name only.
Modern Clothing, Inc., and National Denim Corporation use the mark "Made by
Members of the U.S. Textile Workers Union" on the tags of their products to
indicate the participation of the union in the manufacture. Modern and National
are not in business together and do not own this mark. This mark is
a collective mark.
Delightful Toys, Inc., makes EZ Goo, a children's toy. Without Delightful's
consent, Fast Adhesives Company begins to use "ezgoo" as part of the URL for
Fast's Web site. Fast claims that no consumer would confuse the Web site with
the toy. Fast has committed
trademark dilution.
Phil invents new Web site design software and applies for a patent. If Phil is
granted a patent, his invention will be protected
for twenty years.
Abby and Ben copy and exchange MP3 music files over the Internet without
anyone's permission. With respect to songs owned by Charter Recording
Company, this is
copyright infringement.
Canada and the United States are signatories of the Berne Convention. Doug, a
citizen of Canada, publishes a book first in Canada and then in the United States.
Doug's copyright must be recognized by
all of the signatories of the Berne Convention.
(T/F) Counter-advertising is prohibited.
False
(T/F) It is generally illegal to send an ad via fax without the recipient's permission.
True
(T/F) Telephone solicitation using an automatic dialing system is permitted.
False

(T/F) In The Coca-Cola Co. v. The Koke Co. of America, the United States
Supreme Court upheld an injunction prohibiting competing beverage companies
from calling their products "Koke".
True
(T/F) An applicant cannot register a trademark on the basis of an intention to use
the mark in commerce.
False
(T/F) A generic term is not protected under trademark law unless it acquires a
secondary meaning.
False
(T/F) A patent cannot be obtained for software
False
(T/F) In determining whether a use of copyrighted work is infringement under the
"fair use" doctrine, the least important factor is the effect of the use on the market
for the work.
False
(T/F) Loading a file into a computer's random access memory constitutes the
making of a "copy" for purposes of copyright law.
True
Jill develops a new espresso machine, which she names "Quik Shot." She also
writes the operating manual to be included with each final product. Jill could
obtain trademark protection for
the name only.
Modern Clothing, Inc., and National Denim Corporation use the mark "Made by
Members of the U.S. Textile Workers Union" on the tags of their products to
indicate the participation of the union in the manufacture. Modern and National
are not in business together and do not own this mark. This mark is
a collective mark.
Delightful Toys, Inc., makes EZ Goo, a children's toy. Without Delightful's
consent, Fast Adhesives Company begins to use "ezgoo" as part of the URL for
Fast's Web site. Fast claims that no consumer would confuse the Web site with
the toy. Fast has committed
trademark dilution.
Phil invents new Web site design software and applies for a patent. If Phil is
granted a patent, his invention will be protected
for twenty years.
Abby and Ben copy and exchange MP3 music files over the Internet without
anyone's permission. With respect to songs owned by Charter Recording
Company, this is
copyright infringement.
Canada and the United States are signatories of the Berne Convention. Doug, a
citizen of Canada, publishes a book first in Canada and then in the United States.
Doug's copyright must be recognized by
all of the signatories of the Berne Convention.
(T/F) Counter-advertising is prohibited.
False
(T/F) It is generally illegal to send an ad via fax without the recipient's permission.
True
(T/F) Telephone solicitation using an automatic dialing system is permitted.
False
(T/F) Package labels must use words that the ordinary consumer understands.
True
(T/F) Under the Truth-in-Lending Act, credit terms must be clearly and
conspicuously disclosed.
True
(T/F) An individual who loses a credit card is limited to liability of $500 per card
for unauthorized charges made before the issuer is notified.
False
Tech Company's ad states that "if you aren't using a Tech computer, you aren't
using the best". The Federal Trade Commission would consider this ad
neither false or misleading.
Quality Coffee, Inc., processes and sells a variety of coffee products. Quality's
product packages must include
the identity of the product and the net quantity of the contents.
Corner Market sells groceries. Delite Food & Drug Store sells groceries and fills
prescriptions. The chief responsibility to prevent unsafe food and drugs from
being sold rests with
the Food and Drug Administration.
Steel Tool Company makes and sells tools. One of the tools is believed to be
hazardous. The appropriate government agency may require Steel to
remove the tool from the market.
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Owen signs an installment contract with Pixel Video Store to finance the
purchase of a new TV for $4,999. This transaction is subject to
the Truth-in-Lending Act.
Quik Collection Agency calls Pat several times a day, and sometimes in the
middle of the night, about an overdue bill that Regal Sporting Goods turned over
to Quik for collection. This is a violation of
the Fair Debt Collection Practices Act.
(T/F) A notation on an instrument that is "negotiable" is sufficient to render it
negotiable.
False
T/F: To be negotiable, an instrument must include an unconditional promise to
pay.
True
(T/F) A promissory note cannot be a negotiable instrument.
False
(T/F) An instrument payable to the order of a specified person is not negotiable.
False
(T/F) An indorser is secondarily liable on an instrument.
True
(T/F) A person whose name is forged on an instrument cannot avoid payment on
the instrument to an HDC.
False
Finest Business Company issues an instrument in favor of General Supplies, Inc.
For the instruments to be negotiable, it need not
recite the consideration given in exchange for a promise to pay.
Julie signs a check payable to the order of Kwik Mart Stores, Inc., that does not
include a date. This check is
negotiable.
To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in
favor of Chris. A draft is
an unconditional written order to pay money.
Mike receives a payroll check from National Computer Systems, Inc., and
indorses it by signing his name on the back of the check. This is
a blank indorsement.
Jill, in good faith and for value, gets from Kiley a negotiable bearer instrument. Jill
does not know that Kiley stole the instrument. Jill is
an HDC.
Chris convinces Dion, who does not understand English, to sign a $1,000 note
that Dion believes is an application for a credit card. Chris negotiates the note to
EZ Finance Company. Dion
can avoid payment on the note even if EZ is an HDC.
(T/F) A shareholder is not an "owner" of a corporation.
False
(T/F) A corporation has no implied powers.
False
(T/F) Directors are required to use a reasonable amount of supervision over the
corporate officers.
True
(T/F) Shareholders are ultimately personally responsible for corporate debts.
False
(T/F) A preemptive right is a shareholder's right to bring a derivative suit against
a corporation.
False
(T/F) Damages awarded in a shareholder's derivative suit are paid to the
shareholder who filed the suit.
False
(T/F) Once formed, a corporation cannot be dissolved voluntarily.
False
Mia and Nick are employees of Omega Corporation. Mia commits a tort, and Nick
commits a crime, within the course and scope of their employment. Omega may
be held liable for
Mia's tort and Nick's crime.
Cody and Dina form Eagle Corporation. Eagle has a board of directors, a chief
executive officer, a chief operating officer, and fifty-two shareholders. Eagle is
governed by its:
board of directors.
Gen Corporation, like other business corporations, issues securities to
obtain financing.
Lon and Meri act as the incorporators for New Corporation. After the first board of
directors is chosen, subsequent directors are normally elected by a majority vote
of New's
shareholders.
Tom is a shareholder of Unit Company. As a shareholder, Tom does not have a
right to
compensation.
In all states, Beta Company and other corporations can pay dividends from
retained earnings.
To avoid liability for honest mistakes and bad business decisions under the
Business Judgement Rule, a Director of a corporation must
all of the above.

Micro Corporation's creditors agree to a workout with the firm. This is:
a privately negotiated adjustment of creditor-debtor relations.
One of the advantages of Chapter 13 repayment plans is that:
they are less expensive and less complicated than reorganization proceedings or
liquidation proceedings.
The homestead exemption has been abolished under the Bankruptcy Code.
false
Fannie Farmer, a farmer, needs to file for relief under the federal bankruptcy
code. Under which of the following chapters would she file?
Chapter 12
John Patrick Goulding filed for Chapter 7 bankruptcy relief. In his schedules, he
listed assets of $62,000 and debts of over $670,000. Two banks were the largest
creditors. The banks and the trustee learned that Goulding was the beneficiary of
three irrevocable spendthrift trusts. These funds were set up to pay Goulding a
monthly income of $12,000, but Goulding could not access the principal in the
trusts. The trust funds could not be reached by Goulding's creditors. In addition,
Goulding would be receiving a payment of $200,000 from one of the trusts in six
months. The bankruptcy court most likely held that the amount included in the
property of Goulding's estate was:
$272,000, the total amount he would receive from the trusts within 180 days (six
months) after filing.
A Chapter 7 bankruptcy proceeding is commenced by the:
filing of a petition in bankruptcy.
A provision of the Bankruptcy Code that allows a court to confirm a debtor's
Chapter 11 reorganization plan, even though only one class of creditors has
accepted it, is called a:
cram-down provision
In the Bankruptcy Code, the chapter that provides for liquidation proceedings is:
Chapter 7
Jill believes that she should file a plan for a Chapter 13 discharge in bankruptcy.
A Chapter 13 bankruptcy plan must provide for:
the surrender of all collateral to the creditors.

The plan must provide for submission of the amount of disposable income that
will be available to pay creditors. Certain expenses are deductible from the
debtor's income in order to calculate that amount.
On July 1, Excel Holidays, Inc., a travel agency, files a Chapter 7 petition in
bankruptcy. Among Excel's debtors are Fran who deposited $2,000 on June 1 to
prepay a vacation trip and Gwen, Excel's employee, who is owed sixty days' pay.
Between Fran and Gwen:
Gwen has priority to payment.

Wages and salaries have priority over consumer deposits like Fran'

Quality Vehicles, Inc., offers to sell a specific truck to Regional Delivery

Company. Before accepting the offer, Regional learns that the truck has been
sold to State Trucking, Inc. Quality is
not liable because the sale revoked the offer to regional
Adverse possession is a means of obtaining title to property without the delivery
of a deed.
true
In a sole proprietorship, the owner receives all of the risk.
true
Damages are available for victims of intentional employment discrimination
based on gender.
true
Mack and Nancy engage in a business transaction from which a dispute arises.
Mack initiates a lawsuit against Nancy by filing a complaint.

Refer to Fact Pattern 3-1. The sheriff serves Nancy with a summons. If Nancy
chooses to ignore it
mack will have a judgement entered in his favor
An employer is not required to hire or retain disabled person who poses a "direct
threat to the health or safety" of other employees.
true
Assume for purposes of this question only that Jobco is unable to find an
alternate buyer for the chairs, and that they are forced to sell them at a "salvage"
price of $10,000. If Jobco sues W. Wholesaler for damages, how much should
Jobber recover?
full contract price plus incidental less $10,000 salvage
To Pete, the written law of a particular society at a particular time is most
significant. Pete is
a legal positivist
The United States Supreme Court cannot hold acts of Congress unconstitutional.
false
For a party to take by adverse possession, the party's possession must not be
hostile to the true owner's rights.
false
W. Wholesaler sent a telegram to Jobco "Send 500 'MAdewell' chairs at your
usual price."
Jobco responded, also by telegram, "Will ship our last 500 'Madewell' chairs at
$75 perchair,
our usual price. The 'Masdewell' chair is being discontinued," Jobco's staff
immediately began the paperwork for processing the order and started preparing
and packing the chairs for shipment.

W. Wholesaler wired back to Jobco, "Cancel order for 'Madewell' chairs; your
price is too high." W.Wholesaler tried to find an alternate source for "Madewell"
chairs and found that Rebo company. was the only other dealer in the chairs.
Rebo companies price was also $75 per chair, and W.Wholesaler bought 500
"Madewell" chairs from Rebo company, another supplier at the $75 price. The
day after receiving W. Wholesaler's cancellation Jobco was able to sell the 500
"Madewell" chairs in Job companies stock to UNA for $75 each.

If Jobco sues W. Wholesaler for damages, how much should Jobco recover?
Jobco incidental costs of perparing the paperwork and other office costs
connected with preparing and packing the chairs for shipment to W.Wholesaler.
Tinker Builders learned of a bid being offered by
the local school board for a new high school.
Anxious to get the job, Mr. Tinker quickly estimated the cost of a general bid.
Mr. Tinker then began receiving sub-bids. The lowest such sub-bid
came from Slam-Dunk, Inc. It was for $160,000,which
was $40,000 less than the next lowest sub-bid.

After receiving Slam-Dunk's sub-bid, Mr. Tinker

submitted its general bid to the school board.
Based on the relatively low sub-bid, Mr. Tinker's
General bid was $30,000 lower than the school board
Had originally anticipated.

Pleasantly surprised by the low bid, the

School board accepted. After the acceptance, Slam-Dunk
Informed Mr. Tinker that there had been a mistake in computing the sub-bid.
The correct sub-bid was $210.000. Mr. Tinker had been unaware of this mistake.
In a suit for rescission of its contract with Tinker Builders, Slam-Dunk should:
not win, unless mr tinker knew or should have known of the mistake involved
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The U.S. Constitution is the supreme law of the United States.
true
Jill makes an offer to Kurt. Kurt is
an oferee
Wisconsin, like other states, may regulate private activities to protect or promote
the public order, health, safety, and general welfare under its
police powers
Macro Corporation and National Purchasing Company may create an agency
agreement
by conduct, in writing, or orally
Employment Sources, Inc., enters into a contract with Fiona. If Fiona is a minor,
this contract is most likely
voidable
In the textbook Case: The Coca-Cola Co. v. The Koke Co. of America, the United
States Supreme Court upheld an injunction prohibiting competing beverage
companies from calling their products "Koke."
true
Issues Concerning Congress's powers may be found in the Constitution under
Article 2.
false
Nancy is a state fair promoter who arranges publicity and signs acts for various
state fairs. Mrs. Bea is the owner of "Piglett", a champion hog that has been
trained to do very entertaining tricks. Nancy and Mrs. Bea contracted to have
Piglett perform at the Ohio State Fair in December for $600.00, payable to Mrs.
Bea. Two weeks before the Ohio State Fair was to open Piglett became ill due to
a rare disease and was too sick to perform at the fair. Nancy told Mrs. Bea that
"the pig better show up and perform or I will sue the pants off of you".
Mrs. Bea's best argument for not performing the contract with Nancy would be
based upon which of the following:
impossiblility of performance
If Harry sues Grace for the price of the car and loses, it will be because:
grace did not need the car
To bring an action against an employer based on intentional discrimination, a
person must show that he or she is a member of a protected class.
true
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Joy hires Ken to act as her agent in the purchase of Local Delivery Service. Joy
tells Ken to reveal that he is buying the firm on behalf of a third party and to tell
Local's seller who that third party is. Joy is
a disclosed principal
Kris contracts to work exclusively for Local Company during May for $5,000. On
April 30, Local cancels the contract. Kris finds another job during May but earns
only $3,000. Kris files a suit against Local. As compensatory damages, Kris can
recover
$2,000
Jill contracts to sell Ken her MP3 player for $50. This contract will be fully
discharged when Jill and Ken
exchange the player for $50

Mary, Nick, and Owen want to form a limited partnership to manage MN&O
Services. A limited partnership must have at least:
one limited partner and no general partners.
one managing partner.
one general partner and no limited partners.
one general partner and one limited partner.
one general partner and one limited partner.
In the absence of an express agreement, partnerships are governed by the:
Uniform Partnership Act.
Articles of Partnership.
Uniform Commercial Code.
Articles of Incorporation.
Uniform Partnership Act.
Rona and Stiv do business as Treasure Island Traders. In acting on the firm's
behalf in a deal with Unlimited Potential, Inc., Rona makes an honest error in
overestimating the profit. To her firm, Rona is:
liable for breach of the duty of loyalty.
not liable.
liable for breach of the duty of care.
liable for breach of the duty of economic sense.
not liable.
Which of the following does not represent a major difference between an agency
relationship and a partnership?
Partners have a greater range of implied powers than agents do.
In most states, partners can be held jointly and severally liable; agents cannot.
An agent is liable for the acts of the principal, but partners are not liable for the
acts of the partnership.
Agents do not usually have an ownership interest in the business, and partners
do.
An agent is liable for the acts of the principal, but partners are not liable for the
acts of the partnership.
Pat and Quinn sign a five-year partnership agreement to do business as "Pat's
Landscaping Service." At the end of the fifth year, they decide to continue without
specifying a new term. This partnership is terminable:
only if Pat dissociates from the firm.
only if Quinn dissociates from the firm.
at any time by either partner.
only after an additional five-year term.
at any time by either partner.
During the winding up process, the first priority for distributing the partnership
assets is:
distribution of profits to the partners.
payment of dividends to investors.
return of capital contributions to the partners.
payment of debts.
payment of debts.
Ben is admitted to Consolidated Associates, an existing partnership. A
partnership debt incurred before the date of his admission comes due. Ben is:
personally liable only to the extent the other partners do not pay.
personally liable to the full extent of the debt.
not liable for the debt.
only liable for the debt up to the amount of his capital contribution.
only liable for the debt up to the amount of his capital contribution.
The law firm of Smith, Torrez, and Lynd is organized as a limited liability
partnership. Smith, the senior partner, supervises the work of the other two
partners. Lynd is sued for negligence and loses. Liability for the negligence falls
on:
only the firm as a legal entity.
the firm, Lynd, and Smith.
all partners in the firm.
only Lynd.
he firm, Lynd, and Smith.
Carly wrongfully dissociates from a partnership. Which statement below is
correct?
The amount Carly would receive from the partnership will be reduced by any
damages caused by her wrongful dissociation.
Carly is entitled only to whatever profits have not been distributed to her as of the
day of dissociation.
Carly is entitled to the return of her capital contribution.
Carly is entitled to the amount that would have been distributed to her if the
partnership had wound up on the day of her dissociation.
The amount Carly would receive from the partnership will be reduced by any
damages caused by her wrongful dissociation.
Ace Accountants, LLP, a limited liability partnership, does business in more than
one state. Most likely, Ace's liability outside its state of formation will be
determined by the law of:
the state in which Ace was doing business when the liability arose.
the state in which Ace was formed.
any "neutral" state.
the first state that enacted an LLP statute.
the state in which Ace was formed.
A partner's fiduciary duty includes which of the following?
Proximate care
That the partner always has to assume a management role
Undue care
Duties of loyalty and care
Duties of loyalty and care
A general partner cannot participate in the management of a limited partnership.
True
False
false
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The major advantage of the limited liability partnership is that it:
converts a general partnership to a pass-through entity.
limits the liability of the business entity for acts of individual partners.
allows the LLP to be treated as a separate entity for tax purposes.
limits the personal liability of the partner
limits the personal liability of the partners.
When a partnership by estoppel is deemed to exist, the acts of the non-partner
are:
binding for a specified duration.
tortious.
binding on the partnership.
legally void.
binding on the partnership.
If an event occurs that makes it unlawful for the partnership to continue its
business, the firm will disassociate.
True
False
false
With a few exceptions, all of the rules that govern partnerships apply to limited
liability partnerships.
True
False
true
Unlike in a general partnership, limited partners in a limited partnership:
share losses up to the amount of their capital contribution.
have an equal voice in the management of the business.
receive a salary.
are entitled to receive a share of profit in proportion to the number of hours the
limited partner works for the firm each year.
share losses up to the amount of their capital contribution.
Jan and Kay are partners in Law Firm, LLP, a limited liability partnership. Jan
supervises Kay, who negligently fails to appear in court on behalf of Mike, a
client. Under the principle of proportionate liability, Jan is liable for:
Mike's entire loss.
the amount of any loss attributable to Jan's supervision of Kay.
the amount of any loss that Kay cannot pay.
nothing.
the amount of any loss attributable to Jan's supervision of Kay.
Unlike in a general partnership, limited partners in a limited partnership:
share losses up to the amount of their capital contribution.
have an equal voice in the management of the business.
receive a salary.
are entitled to receive a share of profit in proportion to the number of hours the
limited partner works for the firm each year.
...
Kyle and Larsen enter into a partnership agreement to sell gourmet dog biscuits.
They fail, however, to specify how long the partnership will last. In this situation:
the partnership is for one year plus one day.
the partnership lasts for no less than four years.
the partnership lasts for twelve months.
the partnership is "at will."
the partnership is "at will."
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Hal signs a contract with Macro Chips, a retail component supplier, on Kappa's
behalf. The contract is binding on:
Hal, Ira, Jill, and Kappa.
Hal only.
Kappa only.
no one.
Hal, Ira, Jill, and Kappa.
Jason and Cary want to start a car-detailing business together and share the
profits. Their business entity is a:
corporation.
partnership.
proprietorship.
joint tenancy.
partnership
In winding up a limited partnership, creditors are paid after partners receive their
capital contributions.
True
False
false
A-1 Capital, LP, is a limited partnership. An A-1 limited partner loses his or her
limited liability if he or she:
invests in the firm's competitor.
contributes property in exchange for a partnership interest.
acts as the firm's manager.
has full awareness of the firm's business activities.
acts as the firm's manager.
A partnership is considered a pass-through entity because:
a partnership cannot be sued.
title to property of the business passes through to the individual partners.
the owners pay personal income taxes on the income of the business.
a partnership is a temporary relationship on the way to becoming a corporation.
the owners pay personal income taxes on the income of the business.
Jay is considering forms of business organization for Jay's Designs, an
architectural firm. An advantage of a limited liability partnership is that partners
can avoid personal liability for:
only partnership obligations that exceed capital contributions.
only partnership obligations that fall within capital contributions.
any partnership obligation.
partnership obligations that do not involve malpractice on the part of the partner
or anyone the partner supervises.
partnership obligations that do not involve malpractice on the part of the partner
or anyone the partner supervises.
Assume that Kyle and Larsen have a general partnership. In this situation, unless
otherwise agreed, what rights does each have regarding the management of the
business?
One partner must conduct the partnership business, while the other provides the
capital.
The partner who put in more money has a bigger voice in management.
One partner must be the superior in rights.
They have equal management rights.
They have equal management rights.
For federal income tax purposes, a partnership is treated as:
an aggregate of individuals.
a limited liability corporation.
a separate, legal entity.
a tax-paying entity.
an aggregate of individuals.
The maximum amount of money at risk by a limited partner is the amount of his
or her investment in the limited partnership.
True
False
true
Bret is a general partner in Capitol Realty, LLP, a limited liability partnership
formed for the practice of providing structural engineering services. Capitol
Realty cannot pay its debts. Bret is personally liable for the debts:
to the extent of his capital contribution.
to the full extent.
in proportion to the number of partners in the firm.
to no extent.
to the extent of his capital contribution.
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Ira dissociates from Kappa. Kappa takes no steps to notify anyone of Ira's
dissociation. Two months later, Jill signs a contract with Micro Drives, a
wholesale component supplier, on Kappa's behalf. Micro does not know that Ira
is no longer with the firm. The contract is binding on:
Kappa only.
Hal, Ira, Jill and Kappa.
Hal, Jill, and Kappa only.
Jill only.
Hal, Ira, Jill and Kappa.
Suppose a limited liability partnership (LLP) formed in one state wants to do
business in another state. However, the LLP laws in the two states provide
different liability protection. In this case, the law that usually applies is the:
federal law only.
law of the state where the LLP was formed.
law of the state where the LLP is operating.
whichever state law the partners choose.
law of the state where the LLP was formed.
Charley and Dan form a limited liability partnership for the practice of medicine.
How will the income generated by the LLP be taxed?
The income from Charley and Dan's LLP will be tax-free.
Charley and Dan will report the income from their LLP as salary.
The LLP will file a tax return and pay tax on its income.
Charley and Dan will each report their share of the LLP's profit and loss on their
individual returns.
Charley and Dan will each report their share of the LLP's profit and loss on their
individual returns.
Holly holds herself out as the managing partner of Interstate Investments, a
partnership, even though she has no connection to the firm, and obtains a loan
based on this misrepresentation. Holly's default on the loan results in:
Holly and Interstate's joint liability for the amount.
Holly's sole liability for the amount.
Interstate's sole liability for the amount.
neither Holly's nor Interstate's liability.
Holly's sole liability for the amount.
Joint ownership of property in and of itself creates a partnership.
True
False
false
A partnership for a definite term cannot be dissolved before the expiration of the
term.
True
False
false
In winding up a general partnership, partners can create new obligations on
behalf of the partnership.
True
False
false
Alice, Bob, and Carol want to form a limited partnership to manage two
restaurants: Alice's Restaurant and Bob's Deli. Which statement below is correct
regarding formation of a limited partnership?
The limited partnership is formed when the business actually begins.
The limited partnership is formed when the partners make their capital
contributions.
A certificate of limited partnership must be filed.
The only requirement is for Alice, Bob, and Carol to sign a partnership
agreement.
A certificate of limited partnership must be filed.
Alan and Beth agree while talking on the phone to form a partnership to run a
carpentry shop. Their partnership agreement is legally binding:
only if the parties exchange valid consideration of tangible value.
without more.
only if a third person knows of the agreement.
only if the agreement is reduced to writing.
without more
Generally speaking, a limited partnership will be dissolved if:
a limited partner gets married.
a general partner goes bankrupt.
a limited partner dies.
the partnership business relocates.
a general partner goes bankrupt.
Under the Uniform Partnership Act, a general partnership automatically dissolves
on a partner's bankruptcy.
True
False
false
A general partnership exists if the partners:
own the business jointly.
share profits and losses.
have an equal right to be involved in management of the business.
all of these choices.
all
After Koss, Schmidt, and Jacobsen have been partners for three years,
Jacobsen declares bankruptcy. What will happen as a result?
Nothing. The partnership will continue as always.
Jacobsen will be dissociated from the partnership.
The partnership will terminate due to the bankruptcy.
The partnership will terminate due to withdrawal.
Jacobsen will be dissociated from the partnership.
The fiduciary ties that bind an agent and a principal also bind partners.
True
False
true
Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
Ira dissociates from the firm. To avoid liability for any later acts by Ira, Kappa
should:
do nothing.
get an injunction prohibiting Ira from acting on behalf of Kappa.
notify its creditors, customers and clients of Ira's dissociation.
file a statement of dissolution.
notify its creditors, customers and clients of Ira's dissociation.
A limited partner who participates in the management of the partnership may be
personally liable to the firm's creditors.
True
False
True
Jason and Cary operated their car-detailing business for two years, then fell into
disagreement, even though the business was quite successful. They want to
cease doing business with one another. This formal disbanding of a partnership
is called a:
buyout.
winding up.
dissolution.
dissociation.
dissolution
Joe and Sarah agree to form a partnership to operate a business. Which
statement below is correct about the nature of Joe and Sarah's business?
The partnership can sue or be sued.
Joe and Sarah are not subject to fiduciary duties.
The partnership will be treated as a separate entity for tax purposes.
The partnership cannot hold title to property; any assets the firm owns will have
to be held in the partners' names.
The partnership can sue or be sued.
Quik Pizza is operated as a partnership. For tax purposes, Quik Pizza:
pays 1/2 of the taxes if there are two partners.
pays 1/4 of the taxes if there are three partners.
is a tax-paying entity.
is required to file an information return but is not a tax-paying entity.
is required to file an information return but is not a tax-paying entity.
A third party may sue all partners together or one or more of the partners
separately under the doctrine of:
unlimited liability.
joint and several liability.
joint liability.
vicarious liability.
joint and several liability.
Fritz and Barney, both CPAs, have decided to form a limited liability partnership
for the practice of accounting. Which statement below is correct regarding
formation of Fritz and Barney's LLP?
Fritz and Barney will be treated as having created a limited liability partnership if
they share management and profits and co-own the property of the firm.
Fritz and Barney must file the appropriate form with a central state agency.
Only articles of partnership are required to create the LLP.
Fritz and Barney must prepare a certificate of incorporation.
Fritz and Barney must file the appropriate form with a central state agency.
A corporation can be a partner.
True
False
True
Most states require a limited partnership to file a certificate of limited partnership
with the appropriate state office.
True
False
True
A sharing of profit from the sale of the goodwill of a business creates a
presumption that a partnership exists.
True
False
false
When one partner's relationship with a partnership comes to an end but the
partnership continues to do business, it is known as:
incorporation.
termination.
dissolution.
dissociation.
dissociation
In a limited partnership, a partner who assumes responsibility for the
management of the partnership and personal liability for all partnership debts is
a:
silent partner.
general partner.
limited partner.
limited liability partner.
general partner.
Ike wants to make a superhero movie, with many expensive special effects. He
will need to raise a lot of money to make the film, but doesn't want financial
backers to have any input into how the movie will be made. Which statement is
correct?
If Ike does form a limited partnership, the limited partners do not have the right to
access the firm's books and records.
A limited partner whose only role is to serve coffee and water on the movie set is
likely to have personal liability.
Ike should form a limited partnership to make the film, with investors as general
partners.
Ike should form a limited partnership to make the film, with investors as limited
partners.
Ike should form a limited partnership to make the film, with investors as limited
partners.
Mary, Terry & Tracy were partners in a custom boat-building business, but Terry
dissociated from the partnership. That means Mary and Tracy must:
sue to recover debts owed to the partnership by the dissociated partner.
return the dissociated partner's original capital contribution.
buy out the interest of the dissociated partner.
dissolve the partnership.
buy out the interest of the dissociated partner.
Carol is a partner in Delta Accounting Service. Carol can inspect:
all of Delta's books and records.
Delta's books and records only as the firm's management permits.
Delta's books and records only for a reasonable purpose.
Delta's books and records relating to her capital contribution only.
all of Delta's books and records.
Assume that when Kyle and Larsen formed their partnership, Kyle contributed 90
percent of the capital, and Larsen, 10 percent. They did not agree, however, on
what percentage of the profits each partner would receive. Further, assume that
they make $35,000 in profits in 2012. In this situation, what is Larsen's share of
the profits?
$17,500
$35,000
$3,500
$10,000
17,500
Generally speaking, what will the legal effect be of the personal bankruptcy of
one limited partner?
The partnership will be forced to liquidate.
The partnership will begin winding-up procedures.
The partnership will not dissolve unless the partner's bankruptcy leads to the
bankruptcy of the limited partnership.
The partnership will be dissolved.
The partnership will not dissolve unless the partner's bankruptcy leads to the
bankruptcy of the limited partnership.
Jim and Kyle are partners in J&K Sales, which exports computer equipment
under a three-year partnership agreement. The U.S. government declares that
the equipment can no longer be exported. J&K:
dissolves because the business is now illegal.
does not dissolve under any circumstances.
dissolves when the stated term expires.
dissolves if the partners agree to end the firm.
dissolves because the business is now illegal.
In most states, when a traditional partnership converts to a limited liability
partnership (LLP):
the firm's basic organizational structure changes.
the LLP is no longer a pass-through entity.
all statutory and common law rules governing partnerships still apply, except for
those modified by the LLP statute.
none of these choices.
all statutory and common law rules governing partnerships still apply, except for
those modified by the LLP statute.
In a limited liability partnership, a partner can be exempt from personal liability for
the debt the partnership owes for its rent.
True
False
True
The Uniform Commercial Code governs the operation of partnerships.
True
False
False
Dunn and Etta are partners in Fancee Fashion Stores, a partnership. In terms of
the firm's books, Dunn and Etta are entitled to:
no access.
total access.
access in proportion to their participation in management of the firm.
access to the parts that directly relate to their capital contributions.
total access.
In partnership business, majority rule controls such decisions as:
admitting a new partner.
entering a new line of business
amending the partnership agreement.
none of these choices.
none of these choices.
In most states, partnerships formed without an express agreement are governed
by:
the FTC.
the PCA.
the UCC.
the UPA.
the UPA.
A partner cannot "wrongfully" dissociate from a partnership.
True
False
false
How were partnerships treated under the common law?
As corporations
As sole proprietorships
As separate legal entities
As aggregates of members
As aggregates of members
The two categories of business for which a limited liability partnership (LLP) is
especially attractive are:
professional service firms and family businesses.
professional service firms and unions.
farmers and manufacturers.
manufacturers and computer hardware companies.
professional service firms and family businesses.
If Frank, a dentist who is a member of an LLP, negligently harms Kathy while
attempting to complete a root canal, what is the liability of the other members of
the LLP?
They will be liable only if Frank intended to harm Kathy.
Only the supervising partner will be liable, if there is a supervising partner.
If Frank was negligent, they are also liable.
They will be liable only if Frank's personal assets are insufficient to pay the
damages.
Only the supervising partner will be liable, if there is a supervising partner.
A limited liability partnership must be formed in compliance with state law.
True
False
True

Checks
a special type of draft that is drawn on a bank, ordering the bank to pay a fixed amount of
money on demand
Cashiers Check
when the bank draws a check on itself, this check is called a __________
Travelers Check
an instrument that is payable on demand, drawn on or payable at a financial institution
(such as a bank), and designated as a _____________
Certified Check
a check that has been accepted by the bank on which it is drawn
Stale Check
commercial banking practice regards a check that is presented for payment MORE
THAN SIX MONTHS from its date as _________
Bank-Customer Relationship
begins when the customer opens a checking account and deposits funds, 3 relationships
arise at this time, creditor-debtor, agency, and contractual.
Creditor-Debtor Relationship
created between a customer and a bank when, for instance, the customer makes cash
deposits into a checking account
Agency Relationship
arises between the customer and the bank when the customer writers a check on his or her
account
Contractual Relationship
whenever a bank-customer relationship is established, certain contractual rights and
duties arise
Overdraft
when the bank receives an item properly from its customer checking account but the
account contains insufficient funds to cover the check, the bank has two options; it can
dishonor item or it can pay the item and charge the customers account, thus creating an
_________
Stop-Payment Orders
an order by a customer to her or his bank not to pay a certain check
Incompetence or Death of a Customer
a customers mental incompetence or death does NOT automatically revoke a banks
authority to accept, pay or collect an item. Only AFTER the bank is notified of the
customers incompetence or death and has reasonable time to act on the notice will the
banks authority be ineffective.
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Forged Drawers Signature
when a bank pays a check on which the drawers signature is forged, generally the bank
suffers the loss. Unless the customers negligence substantially contributed to the forgery,
or if the forger can be found, or if the holder knew that the signature was forged.
Depository Bank
the first bank to receive a check for payment
Payor Bank
the bank of which a check is drawn (the drawee bank)
Collecting Bank
Any bank except the payor bank that handles a check during some phase of the collection
process
Intermediary Bank
any bank except for the payor bank and the depository bank to which an item is
transferred in the course of this collection process
Types of EFT Systems
Automated Teller Machines (ATM), Point-of-Sale Systems, Direct Deposits and
Withdrawals, and Online Payment Systems
Point of Sale Systems
online terminals allow consumers to transfer funds to merchants to pay for purchases
using a debit card
Default
fails to pay as promised
Lien
an encumbrance on (claim against) property to satisfy a debt or protect a claim for the
payment of a debt
Artisans Lien
when a debtor fails to pay for labor and materials furnished for the repair or improvement
of personal property, a creditor can recover payment through ___________
Judicial Lien
Write of Attachment and Execution
Writ of Attachment
a court-ordered seizure and taking into custody of property before a judgement is
obtained on a past-due debt
Writ of Execution
an order that directs the sheriff to seize (levy) and sell any of the debtor's nonexempt real
or personal property
Garnishment
permits a creditor to collect a debt by seizing property of the debtor that is being held by
a third party
Creditors Composition Agreements
creditors may contract with the debtor for discharge of the debtors liquidated debts (debts
that are definite, or fixed, in amount) on payment of a sum less than that owed
Mortgage
a written instrument that gives the creditors a lien on the debtors real property as security
for payment of a debt
Adjustable Rate Mortgage (ARM)
the rate of interest paid by the borrower changes periodically
Fixed Rate Mortgage
a fixed, or unchanging, rate of interest, so the payments remain the same for the duration
of the loan
Prepayment Penelty
requires the borrower to pay a penalty if the mortgage is repaid in full within a certain
period
Homeowners Insurance
protects the lenders interest in the even of a loss due to a certain hazard, such as a fire or
storm.
Foreclosure
the legal process by which the lender repossesses and auctions off the property that has
secured the loan
Ways to avoid Foreclosure
Forbearance, workout agreement, and short sales
Forbearance
a postponement of part or all of the payments on a loan for a limited time
Workout Agreement
a contract that describes the respective rights and responsibilities of the borrower and the
lender as they try to resolve the default
Short Sale
a sale of the property for less than the balance due on the mortgage loan
Suretyship
a promise made by a third person to be responsible for the debtors obligation. It is an
express contract between the surety (the third party) and the creditor. Surety is primarily
liable for the debtors obligations.
Gurantor
the third person making the guaranty---is secondarily liable
Rights of the Surety and the Gurantor
When the surety or guarantor pays the debt owed to the creditor, he or she acquires
certain rights; Right of Subrogation, Right of Reimbursement, and Right of Contribution.
Right of Subrogation
any right that the creditor had against the debtor now becomes the right of the surety
Right of Reimbursement
surety is entitled to receive from the debtor all outlays made on behalf of the surety
relationship
Right of Contribution
the co-surety is entitiled to recover from the other co-sureties the amopunt paid above the
surety obligation
Co-Sureties
two or more sureties
Secured Transaction
whenever the payment of a debt is guaranteed, or secured, by personal property owned or
held by the debtor, the transaction becomes known as a ___________
Secured Party
any creditor who has a security interest in the debtors collateral
Debtor
the party who OWES payment or other performance of a secured obligation
Security Interest
the interest in the collateral (such as personal property fixtures, or accounts) that secures
payment or performance of an obligation
Security Agreement
an agreement that creates or provides for a security interest
Collateral
the subject of the security interest
Financing Statement
the instrument normally filed to give public notice to third parties of the secured party's
security interest
Attachment
gives the creditor an enforceable security interest in the collateral
Perfection
the legal process by which secured parties protect themselves against claims of third
parties who may wish to have their debts satisfied out of the same collateral
Purchase Money Security Interest (PMSI)
created when a seller or lender agree to extend credit to a buyer for part or all of the
purchase price of the goods in a sales transaction
Proceeds
the cash or property received when collateral is sold of disposed of in some other way
After Acquired Property
property that the debtor acquired after the execution of the security agreement
Cross Collateralization
occurs when an asset that is not the subject of a loan is used to collateralize that loan
Floating Lien
A security agreement that provides for a security interest in proceeds, after acquired
property, or in collateral subject to future advances by the secured party is often
characterized as a ___________
Execution
the implementation of a courts decree or judgement
Levy
the legal process of obtaining of funds through the seizure and sale of nonexempt
property, usually done after a writ of execution has been issued
Junior Lienholder
a party holding a lien that is subordinate to one or more other liens on the same property

The person who signs or makes an order to pay is the drawer.

True
A negotiable instrument serves as a substitute for money.
True
A bearer instrument is payable to whoever possesses it.
True
To be negotiable, an instrument must be in writing.
True
An instrument can be negotiable even if it is not payable on demand or at a
definite time.
False; To be negotiable, an instrument must be payable on demand or at a
definite time. Instruments that say nothing about when payment is due are
payable on demand.
An instrument including a clause that permits the date of maturity to be extended
by the maker for "no more than a reasonable time" is negotiable.
False; The length of the extension does not have to be specific if the option to
extend is solely that of the holder. After the specified date passes, the note
becomes, in effect, a demand instrument. The period of an extension must be
specified, however, if the option is given to the maker.
An instrument payable to the order of a specific person is not negotiable.
False; This is an order instrument. Order instruments that meet the requirements
for negotiability are negotiable. An instrument that contains any indication that
does not purport to designate a specific payee (for example, "payable to bearer")
is a bearer instrument. A bearer instrument that meets the requirements for
negotiability is also negotiable. When an instrument is not negotiable, it may be
transferred by assignment.
TO be negotiable, the terms of a promise or order must be included on the
instrument.
True
To be negotiable, an instrument must include an unconditional promise to pay.
True
An instrument is not negotiable if reference must be made to foreign exchange
rates when payment is due.
False; To be negotiable, an instrument must be payable in a fixed amount of
money. Money includes "a medium of exchange authorized or adopted by a
domestic or foreign government as a part of its currency." An instrument payable
in an amount stated in foreign currency can be paid in that currency or in U.S.
dollars.
A holder in due course (HDC) takes a negotiable instrument free of most
defenses and all claims to it.
True
Indorsements are required to negotiate order instruments.
True
A promise to give value in the future makes a holder an HDC.
False; This promise would support a contract but would not satisfy the value
requiremetn for HDC status. Value Sufficient to make a holder an HDC
includestake an instrument in payment of, or as security for, a preexisting debt;
giving a check in payment for the instrument; and performing the promise for
which the instrument was issued.
Indorsements are required to negotiate bearer instruments.
False; Bearer instruments can be negotiated by delivery alone. That is why a
bearer instrument is considered payable to whoever is in possession of it.
Every person who possesses an instrument is a holder.
False; To be a holder, a person must have possession and good title. The
definition of a holder, from UCC 1-201(20), is "the person in possession if the
instrument is payable to bearer, or in the case of an instrument payable to an
identified person, if the identified person is in possession."
For HDC status, good faith means "honesty in fact and the observance of
reasonable commercial standards of fair dealing."
True.
A holder has only those rights that his or her transferor had in the instrument.
True.
All claims to an instrument can be successfully asserted against an HDC.
False; If a holder is an HDC, all other parties' claims to an instrument and most
other parties' defenses against payment on the instrument cannot be
successfully asserted against the HDC.
Taking a check knowing that the drawee dishonored it prevents a holder from
becoming an HDC.
True.
A holder who has knowledge of a defense against payment on an instrument can
become an HDC.
False; A holder who knows or has reason to know if a claim to an instrument or a
defense against payment on it cannot become an HDC. Furtermore, sucha
holder cannot change his or her status by selling the instrument and
repurchasing it from a later HDC in an attempt to take advantage of the shelter
principle.
Signature liability extends to any person who signs a negotiable instrument.
True.
Every party who signs an instrument is primarily liable for payment of it when it
comes due.
False; Some parties are secondarily liable.
An authorized agent may be personally liable on an instrument on which the
agent signs the agent's name but not the principal's name.
True.
Warranty liability does not bind parties who only present instruments for
payment.
False; All transferors of negotiable instruments, including those who present
instruments for payment, make certain implied warranties regarding the
instrument. For example, a person who transfers an instrument for payment
warrants to any other person who in good faith accepts or pays the instrument,
with some exceptions, that the instrument has not been altered.
An accommodation party as primary liability if he or she signs on behalf of a
maker.
True.
Universal defenses can be raised to avoid payment to an HDC.
True.
A drawer can stop payment on a check in the possession of an innocent holder if
the drawer was induced by an imposter to issue the check in the name of an
impersonated payee.
False; The loss in such a case falls on the drawer against whom the check is
effective if it has been transferred to an innocent party. However, comparative
negligence may been available as a defense against liability to a drawee bank,
for example, which may thus be partially liable for the amount paid on the
instrument.
Personal defenses can be raised to avoid payment to an HDC.
False; Personal defenses can be used to avoid payment to an ordinary holder,
but only universal defenses can defeat the claims of all holders, including HDCs.
An unauthorized signature usually binds the person whose name is forged.
False; An unauthorized signature can be binding, however, if a person whose
name is signed ratifies it. The person's negligence may also prevent him or her
from denying liability. Usually, when there is a forged or unauthorized
indorsement, the burden of loss falls on the first party to take the instrument with
the forged indorsement.
A drawer is secondarily liable on an instrument.
True.
A check is a draft drawn on a bank.
True.
if a bank fails to honor a customer's stop-payment order, it may be liable to the
customer for more than the amount of the loss suffered by the drawer because of
the wrongful payment.
False; If a bank pays a check over a customer's proper stop-payment order, the
bank is obligated to recredit the customer's account, but only for the amount of
the actual loss suffered by the drawer because of the wrongful payment.
A bank's duty to honor its customer's checks is absolute.
False; A bank's duty to honor its customer's checks is not absolute (although
when a bank receives an item payable from a customer's account, but there are
insufficient funds in the account to cover the amount, the bank can choose to pay
it and charge the customer's account). Failing to pay an overdraft will not subject
the bank to criminal prosecution, though a person who writes a bad check may
be prosecuted (and sued).
Generally, funds must be available on the next business day for cash deposits.
True.
A bank that fails to investigate an error and report it's conclusion promptly to the
customer is in violation of the Electronic Fun Transfer Act (EFTA).
True.
A customer must examine the statements provided by the institution handling his
or her account and notify it of any errors within sixty days.
True.
The rights and duties of a bank and it's customers are contractual.
True.
All funds deposits in all bank accounts must be available for withdrawl no later
than the next day.
False; Under the Expedited Funds Availability Act of 1987, there are different
availability schedules for different funds, depending on such factors as the
location of the bank on which an item is drawn, what type of item it is, the age
and activity of an account, and the amount of the item.
A bank that pays a customer's check bearing a forged indorsement must recredit
the customer's account.
True.
A forged drawer's signature on a check is effective as the signature of the person
whose name is signed.
False; A forged drawer's signature on a check has no legal effect as the
signature of the party whose name is signed. If the bank pays the check, the
bank must recredit the customer's account (unless the customer's negligence
contributed substantially o the forgery).
Third Party Beneficiary
A person who is specifically meant to benefit and enforce from a contract even
though he/she was not originally apart of the contract
Assignment
Transfer of rights, also including a transfer of obligations to a third party.
A condition precedent vs condition subsequent
event that must occur before there is an obligation to perform the contract vs. if
an event brings an end to the rights/duties
Rescission
victim of the breach of contract decides to just cancel the contract
Special Performance
victim of the breach of contract seeks a court order to carry out the contract
What are the kinds of negotiable instruments?
Promissory Notes, Certificate of Deposit, Draft (check)
Order Paper vs Bearer Paper
Order paper is payable to the person named on the instrument and Bearer Paper
is payable to whoever has possession of it.
Bearer Paper is an instrument that requires a signature in order to be payable?
False. It is cashable by whoever has possession of it
Is a holder in due course subject to win real defenses?
No. Perrsonal Defenses.
Terms in this set (70)

An officer of a corporation cannot possess the power to bind the corporation

False
An employee may act in the capacity of an agent.
True
An agent whose employer does not have the right to control the agent's performance is an
independent contractor.
True
An independent contractor always acts in the capacity of an agent
False
A minor can be an agent.
True
A principal may deny the existence of an agency relationship whenever it suits his or her
purpose
False
An agency agreement must be in writing.
False
An agency agreement can be implied by conduct
True
An agency relationship is a fiduciary relationship
True
An agent owes his or her principal a duty to act in good faith
True
A principal owes his or her agent a duty to act in good faith
True
An agent must use reasonable diligence and skill in acting on behalf of his or her
principal.
True
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An agent must maintain separate accounts for the principal's funds and the agent's
personal funds.
True
Generally, a principal has a duty to pay an agent for services rendered
True
A principal must indemnify an agent for liability due to authorized acts by the agent.
True
A principal has a duty to cooperate with the agent
True
If a contract is in writing, the agent's authority to perform the same duty must be in
writing.
True
A principal's liability in a contract with a third party may depend on the authority given
to the agent to act on behalf of the principal
True
A power of attorney can be given only by an actual attorney.
False
An agent's authority must be apparent for the agent's act to bind a principal.
False
An agent's authority must be express for the agent's act to bind a principal.
False
Apparent authority exists if a principal causes a third party reasonably to believe that an
agent has authority to act
True
A principal may affirm the desirable parts of a contract and reject the undesirable parts of
the contract.
False
A principal must ratify a contract to be bound to it.
False
If an agent acts within the scope of authority, a disclosed principal is liable to a third
party for contracts made by the agent
True
If an agent acts within the scope of authority, a partially disclosed principal is liable to a
third party for contracts made by the agent
True
If an agent acts within the scope of authority, an undisclosed principal is liable to a third
party for contracts made by the agent.
True
Any party who uses an e-agent is bound by the e-agent's actions.
True
When a principal places an agent in a position to defraud a third party, the principal is
liable for the agent's fraudulent acts.
True
Under the theory of respondeat superior, liability for the wrongful acts of employees
within the scope of their employment is imposed on employers
True
A principal is liable for any harm caused by his or her agent's tort.
False
A principal cannot be held liable for an agent's crime.
False
Wrongful termination of an agency relationship can subject the canceling party to a suit
for damages.
True
Even after an agency relationship has terminated, there are circumstances under which a
principal may be bound by his or her agent's act.
True
When the subject matter of an agency is lost or destroyed, the agency terminates.
True
Roz and Sara work as clerks in Trina's Nu Clothes Shop. Trina withholds federal taxes
from their pay, and controls the methods and details of the performance of their work.
Roz and Sara are not authorized to modify the prices or other terms of a sale at the shop.

Trina authorizes Roz to sell clothes at remote lo-cations at prices that Liz negotiates in
those locations. With respect to sales at those locations, Roz is

a. an independent contractor
b. not Trina's agent or employee, or an independent contractor
c. Trina's agent and employee
d. Trina's employee only
C
Roz and Sara work as clerks in Trina's Nu Clothes Shop. Trina withholds federal taxes
from their pay, and controls the methods and details of the performance of their work.
Roz and Sara are not authorized to modify the prices or other terms of a sale at the shop

At the shop, Roz and Sara are

a. an independent contractors
b. not Trina's agent or employees, or an independent contractors
c. Trina's agents and employees
d. Trina's employee only
...
Roz and Sara work as clerks in Trina's Nu Clothes Shop. Trina withholds federal taxes
from their pay, and controls the methods and details of the performance of their work.
Roz and Sara are not authorized to modify the prices or other terms of a sale at the shop.

Trina hires Unity Cleaning Company to clean the carpets of her shop. Trina gives Unity
instructions as to what needs to be cleaned and when. Unity is

a. an independent contractor
b. not Trina's agent or employee, or an independent contractor
c. Trina's agent and employee
d. Trina's employee only
A
KupaJava hires Lila to manage one of its seven drive-through coffee stands. KupaJava
agrees to pay Lila a salary, plus commission. KupaJava stipulates the standards that
should be observed, the goals that should be attained, and the methods that should be
used. Lila

a. is an employee
b. is an independent contractor
c. is a principal
d. creates copyrighted "work for hire"
A
Marisa contracts with Nastia to act as her agent in a fraudulent marketing scheme. Marisa
does not successfully complete the scheme. Nastia can re-cover from Marisa for
a. breach of contract
b. breach of the duty of performance
c. misrepresentation
d. none of the choices
D
Irma retains Jerry as her authorized agent, unaware that Jerry is a minor. Jerry enters into
a contract with Ken on Irma's behalf. The contract is

a. binding on Irma
b. binding on Jerry and Ken, but not Irma
c. binding on Ken , but not Irma or Jerry
d. void
A
Jill introduces Kelly to her friends as "my associate." Kelly purports to act as Jill's agent
in several business transactions with those friends. If Jill is liable for Kelly's actions, it
will be under

a. the doctrine of estoppel

b. the equal dignity rule
c. the fiduciary principle
d. the good faith statute
A
Deloit Gear Corporation and Engine Rotor Company supply parts to Fulsome Trucks &
Tractors, Inc., and other heavy equipment operators. These firms may create an agency
agreement

a. by conduct, in writing, or orally

b. by conduct or orally only
c. in writing only
d. under no cirumstances
A
Jay holds himself out as possessing special accounting skills. As an agent, he must
exercise the degree of skill or care expected of

a. person having those skills

b. an average, unskilled person
c. a reasonable person
d. the principle
A
Property Investment Corporation (PIC) hires Quang, a real estate agent, to locate
commercial investment properties for PIC. Quang learns of a warehouse available for
$100,000, buys it himself, and offers it to PIC for $200,000. Quang has breached

a. no duty
b. the duty of accounting
c. the duty of loyalty
d. the duty of notification
C
Dan, an agent for Eve, signs an agreement with Fred on Eve's behalf but neglects to tell
Eve that the agreement requires the payment of a certain tax. The government prosecutes
Eve for failing to pay the tax. Eve is

a. liable, because Dan's knowledge is imputed to Eve

b. liable, because Fred's knowledge is imputed to Eve
c. not liable, because Dan did not tell Eve about the tax
d. not liable, because Fred did not tell Eve about the tax
A
Prospective Enterprises (PE) employs Quinn to buy property for a possible commercial
development. Quinn secretly buys some of the property andsells it to PE at a profit.
Quinn has breached

a. no duty
b. the duty of accounting
c. the duty of loyalty
d. the duty of notification
C
Internet Services, Inc., employs Joe as an agent. During the agency, Joe acquires new
skills. After the termination of the relationship, Joe usesthose skills in a new job. Joe has
breached

a. no duty
b. the duty of loyalty
c. the duty of notification
d. the duty of performance
A
Hot Recipes, Inc., hires Ike to act as its agent. On Hot's behalf, Ike enters into a contract
with Jana. Hot does not perform the contract, and Jana sues Ike for the breach. Ike's right
to sue Hot for the cost in defending against the suit is the right of

a. avoidance
b. cooperation
c. indemnification
d. reimbursement
C
Stix & Stonz Corporation (S&S) employs Teri as an agent. S&S gives her an exclusive
territory in which to sell S&S products. S&S cannot compete with her in that territory
under the duty of

a. compensation
b. cooperation
c. indemnification
d. reimbursement
B
Neighborly Insurance Company and Ollie put their agency agreement into a written
document that describes the rights and duties of both parties. Ollie, as the agent, has

a. apparent authority
b. equal authority
c. express authority
d. implied authority
C
Dolly is a businessperson acting as an agent for Evergreen Woods, Inc. In an ordinary
business situation, Dolly
a. can contract on Evergreen's behalf without further authority or ratification.
b. cannot contract on Evergreen's behalf.
c. must obtain Evergreen's written authority to enter into a contract on its behalf.
d.must obtain Evergreen's later ratification of a contract entered into on its behalf.
A
Geoff is hired by Huck to serve as his agent. To carry out the duties of this position,
Geoff has authority that is implied

a. by contradiction
b. by custom
c. by lack of reason
d. under no circumstances
B
Lyn may hire employees to work in the Main St. Computer Store that she manages
despite the fact that her employment agreement with Main St. says nothing about her
being able to hire employees. This is

a. apparent authority
b. equal authority
c. express authority
d. implied authority
D
Quick Supplies Company (QSC) requires its customers to pay by check. Ron, a QSC
driver, tells customers on his route that they can pay him with cash. When QSC learns of
Ron's collections, it takes no action to stop it. Ron steals some of the cash. QSC may be
suffer the loss under the doctrine of

a. apparent authority
b. equal authority
c. express authority
d. implied authority
A
Based on Bluto's conduct, Cass reasonably believes that Dee has the authority to act on
Bluto's behalf even though Dee does not have the actual authority to do so. Cass makes a
payment to Dee for Bluto. Dee absconds with the funds. Bluto

a. can demand that Cass make a repayment directly to Bluto.

b.can obtain damages from Cass for Dee's misconduct.
c. may be estopped from denying that Dee had authority.
d. must repudiate Dee's misconduct to avoid liability.
C
Carol hires Dick to act as her agent in the purchase of an office building. Carol does not
want the seller to know that she is the buyer, so she asks Dick to represent that he is
buying the building for himself. Carol is

a. a disclosed principal
b. an independent contractor
c. an undisclosed principal
d. a partially disclosed principal
C
BizzE.com uses an electronic agent, or e-agent, to perform certain tasks in e-commerce.
With respect to the e-agent's actions, BizzE.com is bound by

a. all of the action

b. only those actions of which BizzE.com is aware
c. only those actions that BizzE.com does not refute within ten days
d. only those actions that BizzE.com ratifies
A
Myra, an agent for National Buys, Inc., has often done business with Owen on National's
behalf. Myra and National terminate their agency. For Myra and National to avoid
liability for later deals, Owen must be notified by

a. Myra only
b. National only
c. Myra and National
d. neither Myra nor National
B
Rupert, an agent for Star Productions, Inc., enters into an unauthorized contract with
Trucking Corporation purportedly on behalf of Star, which refuses to perform. Rupert is
liable

a. for brach of contract to Star and Trucking

b. for misrepresentation to Star only
c. for misrepresentation to Trucking only
d. to no one
C
Elle is an agent for Fresh Food Corporation. Elle makes a misrepresenta-tion when
entering into a contract on behalf of Fresh with Gala Grocery Stores, Inc. Gala
a. is estopped from performing the contract
b. may rescind the contract
c. must perform the contract
d. must ratify the contract
B
Clu serves in a representative capacity for Digger. Elmo is injured through Clu's
negligence. Digger may be liable to Elmo if Clu's conduct occurred

a. due to propensity Digger was not and couldn't not have been aware of
b. during normal working hours
c. in the course and scope of Clu's employment
d. outside the parties' employment relationship
C
Picabo drives a truck as an employee for Quik Delivery, Inc. Picabo would most likely be
considered to be acting outside the scope of her employmentif she

a. ceased into a car at the airport while off duty

b. hit a pedestrian in a parking lot during a "working" lunch
c. ran over an attendant at a gas station while refueling the truck
d. smashed into a store-front while intoxicated on-duty
A
Eve hires Frank to do some remodeling work in her office. The relationship between Eve
and Frank is client and independent contractor. While working, Frank drops a tool on
Gary, Eve's customer, causing an injury. Eve is

a. liable to Gary because he was injured on Eve's property

b. liable to Gary unless Frank's act is intentional
c. not liable because Frank is an independent contractor
d. not liable to Gary because Frank is Eve's employee
C
Common Carrier Corporation (CCC) employs Don as an agent. Without CCC's
knowledge but otherwise acting within the scope of employment, Don commits a crime.
The state can successfully prosecute

a. CCC only
b. CCC or Don
c. Don only
d. neither CCC nor DON
C
Gil is a purchasing agent for H&H Ranch with the authority to buy cattle at a certain
auction. After the cattle have been bought, the agency rela-tionship terminates

a. automatically
b. following notice to all actual cattle sellers
c. following notice to all potential cattle sellers
d. following published notice in a local newspaper
A
Mary hires Nina, a real estate broker, to sell her warehouse. The ware-house burns down
before being sold. Nina is
a.Mary's agent until Mary's insurer pays Nina's commission. b.Mary's agent until the
burnt warehouse is sold.
c. Mary's agent until the warehouse is rebuilt and sold.
d. no longer Mary's agent.
D
Ida hires Jim, a real estate broker, to act as her agent to sell her land for $10,000. Oil is
discovered beneath the land, causing its market value to in-crease one hundred-fold. The
agency agreement is likely

a. still in force if Ida gives Jim additional consideration

b. still in force if Jim does not mention the oil prospective customers
c. terminated by mutual consent of the parties
d. terminated by operation of law
D
Quinn employs Roy as his authorized business agent on April 1. Quinn's son Stan
petitions a court to declare Quinn mentally incompetent. The court grants Stan's request
on May 1.

Roy enters into a contract on Quinn's behalf on April 15. After May 1, the contract,
which has not been performed, is

a. binding to Quinn
b. binding on Roy
c. binding on Stan
d. void
A
Quinn employs Roy as his authorized business agent on April 1. Quinn's son Stan
petitions a court to declare Quinn mentally incompetent. The court grants Stan's request
on May 1

Roy enters into a contract on Quinn's behalf on May 15, before Roy knows of the court's
action. The contract is

a. binding to Quinn
b. binding on Roy
c. binding on Stan
d. void
D

A fiduciary relationship involves trust and confidence. T or F

True
An employee may not act in the capacity of an agent. T or F
False
An agency relationship cannot exist in the absence of a formal
agreement. T or F
False
A principal can ratify an agreement made without authorization on his or
her behalf by one who is not his or her agent. T or F
True
A principal owes an agent a duty of accounting. T or F
False
The employment-at-will doctrine is little used today. T or F
False
Under federal law, the term wages includes only a set amount of pay
expressed in dollars. T or F
False
A closed shop is a firm that rejects union membership as a condition of
employment. T or F
False
Most employees can continue the group health benefits provided by
their employers for a limited period of time after the loss of employment.
T or F
True
All unemployed workers are eligible for unemployment compensation. T
or F
False
Under federal law, only key employees who take temporary family or
medical leave are entitled to job reinstatement. T or F
False
Generally, an employer’s monitoring of electronic commu-nications in
the workplace does not violate employees’ privacy rights. T or F
True
Only state law governs drug tests of private-sector employees. T or F
True
An employer can require an employee to take a lie-detector test when
investigating losses attributable to theft. T or F
True
An employer may hire an illegal immigrant if the employer files a special
form. T or F
False
A draft drawn by a drawer ordering the drawee bank or financial institution to pay
a fixed amount of money to the holder on demand is a:

a. traveler's check.
b. draft.
c. cashier's check.
d. check.
d. check.
A check drawn by a bank on itself is referred to as a:

a. check.
b. certified check.
c. cashier's check.
d. traveler's check.
c. cashier's check.
Cashier's checks are sometimes used in the business community as nearly the
equivalent of:

a. traveler's checks.
b. a credit card.
c. cash.
d. a debit card.
c. cash.
Jason made a cash deposit into his checking account at First National Bank. As
a result:

a. Jason and the bank both become debtors for the amount deposited.
b. Jason becomes a creditor, and the bank a debtor, for the amount deposited.
c. Jason and the bank both become creditors for the amount deposited.
d. Jason becomes a debtor, and the bank a creditor, for the amount deposited.
b. Jason becomes a creditor, and the bank a debtor, for the amount deposited.
Cassie had loaned Jules money, which Jules paid back by writing a check. When
Cassie deposited it in her bank, it was returned by Jules bank for insufficient
funds. If Jules bank had honored Jules check even though Jules account had
insufficient funds, it would be referred to as a(n):

a. stale check.
b. draft.
c. check.
d. overdraft.
b. Jason becomes a creditor, and the bank a debtor, for the amount deposited.
A bank can expressly agree with a customer to accept overdrafts through what is
sometimes called a(n):

a. wrongful dishonor protection plan.

b. customer protection agreement.
c. overdraft protection agreement.
d. draft protection plan.
c. overdraft protection agreement.
A check, other than a certified check, that is presented for payment more than six
months after its date is referred to as a(n):

a. certified check.
b. stop-payment order.
c. overdraft.
d. stale check.
d. stale check.
Bill Owens, owner of Zenith Construction Co., hired a new office manager
(Sarah) who came with high recommendations. Her duties included writing
checks to pay bills for the firm, although all checks required Bill's signature.
Unknown to Bill, Sarah began to write checks to herself for $100 or $200 at a
time, forging his signature to do it. Bill discovered this 7 months after the first
forgery, and calculated that altogether, she had embezzled $4,200. Upon his
discovery of Sarah's forgeries, Bill fired Sarah, and demanded that the bank
redeposit this amount paid to Sarah through her forgery. Will he win? Why or why
not?

a. No, he will lose because he has been negligent in not checking his bank
statements within 30 days, as required, and also for not supervising his
employee adequately.
b. Yes, he will win. The checks were a forged, which the bank would have known
if it had compared the signatures on the checks to the signature on the signature
card.
c. No, he will lose because he has been negligent in his hiring of Sarah.
d. Yes, he will win because the checks were forged.
a. No, he will lose because he has been negligent in not checking his bank
statements within 30 days, as required, and also for not supervising his
employee adequately.
The Expedited Funds Availability Act of 1987 and Regulation CC require that any
local check deposited must be available for withdrawal by:

a. check or as cash within three business days from the date of deposit.
b. check within one business day from the date of deposit.
c. check or as cash within one business day from the date of deposit.
d. cash within one business day from the date of deposit.
c. check or as cash within one business day from the date of deposit.
The first bank to receive a check for payment is the:

a. intermediary bank.
b. depositary bank.
c. collecting bank.
d. payor bank.
b. depositary bank.
The bank on which the check is drawn is the:

a. intermediary bank.
b. depository bank.
c. collecting bank.
d. payor bank.
d. payor bank.
A set of rules issued by the Federal Reserve System's Board of Governors to
protect users of electronic fund transfer systems is referred to as:

a. Regulation H.
b. Regulation E.
c. Regulation G.
d. Regulation F.
b. Regulation E.
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A card containing a microprocessor that permits storage of funds via security
programming, can communicate with other computers, and does not require
online authorization for fund transfers is called a:

a. debit card.
b. stored-value card.
c. credit card.
d. smart card.
d. smart card.
All of the following are services typically used by online banking customers
except:

a. withdrawing funds.
b. bill consolidation and payment.
c. applying for loans.
d. transferring funds among accounts.
a. withdrawing funds.
A check that has been accepted in writing by the bank on which it is drawn is
referred to as a:

a. traveler's check.
b. certified check.
c. check.
d. cashier's check.
b. certified check.
Jon is about to travel to Turkey to visit a former classmate who studied in the
U.S. at the university where Jon studied. To have money on the trip which is
protected from theft, Jon purchases traveler's checks at the bank, and signs them
while the teller watches. Jon will have to sign them again at the time they are:

a. completed.
b. offered.
c. used.
d. paid.
c. used.
To certify a check, the bank writes or stamps the word certified on the face of the
check and typically writes the amount that it will:

a. deliver.
b. pay.
c. accept.
d. hold.
b. pay.
When a customer writes a check on his or her account:

a. All of these choices.

b. an agency relationship is established.
c. a lessor-lessee relationship is established.
d. a buyer-seller relationship is established.
b. an agency relationship is established.
Samantha wrote a check to pay for a DVD player she purchased at an
electronics store. However, when she got it home, she discovered that it would
not play Blu-Ray DVDs, which was the kind she asked for. Immediately, she
called her bank and ordered a(n):

a. stale-check order.
b. due-course payment order.
c. overdraft order.
d. stop-payment order.
stop-payment order.
If a bank is unaware that a customer who wrote a check has been declared
incompetent or has died, the bank:

a. will not incur liability.

b. will incur liability.
c. cannot pay the item without incurring liability.
d. can pay the item without incurring liability.
d. can pay the item without incurring liability.
When a bank pays a check with a forged signature, the general rule is that the
bank:

a. None of these choices.

b. cannot be held liable.
c. must recredit the customer's account.
d. can demand that the customer repay the bank for the amount of the check.
c. must recredit the customer's account.
Any bank handling an item for collection, except the payor bank is referred to as
the:

a. None of these choices.

b. intermediary bank.
c. depositary bank.
d. collecting bank.
d. collecting bank.
The time between when a check is written and when the amount is actually
deducted from an account is called:

a. drift.
b. hang time.
c. the interval.
d. float.
d. float.
A system or place where banks exchange checks and drafts drawn on each
other and settle daily balances is referred to as a(n):

a. clearinghouse.
b. counting house.
c. intermediary.
d. Federal Reserve Bank.
a. clearinghouse.
A transfer of funds with the use of an electronic terminal, a telephone, a
computer, or magnetic tape is called a(n):

a. commercial electronic funds transfer.

b. fund transfer.
c. electronic fund transfer.
d. electronic transfer.
c. electronic fund transfer.
A type of EFT system that allows consumers to transfer funds to merchants to
pay for purchases using a debit card is called a(n):

a. internet payment system.

b. direct deposit.
c. automated teller machine.
d. point-of-sale system.
d. point-of-sale system.
Funds contained on computer software, in the form of secure programs stored on
microchips and on other computer devices, is called:
a. digital drafts.
b. digital cash.
c. physical cash.
d. computer currency.
b. digital cash.
A card bearing a magnetic strip that holds magnetically encoded data, providing
access to stored funds is called a:

a. debit card.
b. credit card.
c. stored-value card.
d. smart card.
c. stored-value card.
agency
A relationship between two parties in which one party (the agent) agrees to
represent or act for the other (the principal).
exclusice agency
An agency in which a principal grants an agent an exclusive territory and does
not allow another agent to compete in that territory.
fiduciary
As a noun, a person having a duty created by his or her undertaking to act
primarily for another's benefit in matters connected with the undertaking. As an
adjective, a relationship founded on trust and confidence
independent contractor
One who works for, and receives payment from, an employer but whose working
conditions and methods are not controlled by the employer. An independent
contractor is not an employee but may be an agent.
Winona contracted with XtremeCast, a broadcast media firm, to cohost an
Internet-streaming sports program. Winona and XtremeCast signed a new
contract for each episode. In each contract, Winona agreed to work a certain
number of days for a certain salary. During each broadcast, Winona was free to
improvise her performance. She had no other obligation to work for XtremeCast.
Was Winona an independent contractor?
Yes. An independent contractor is a person who contracts with another—the
principal—to do something but who is neither controlled by the other nor subject
to the other's right to control with respect to the performance. Independent
contractors are not employees, because those who hire them have no control
over the details of their performance.
Dimka Corporation wants to build a new mall on a specific tract of land. Dimka
contracts with Nadine to buy the property. When Nadine learns of the difference
between the price that Dimka is willing to pay and the price at which the owner is
willing to sell, she wants to buy the land and sell it to Dimka herself. Can she do
this? Discuss.
No. Nadine, as an agent, is prohibited from taking advantage of the agency
relationship to obtain property that the principal (Dimka Corporation) wants to
purchase. This is the duty of loyalty that arises with every agency relationship.
An agency relationship can arise in four ways. Which are?
by agreement of the parties, by ratification, by estoppel, and by operation of law.
agency coupled with an interest
An agency relationship in which the agent has some legal right to (an interest in)
the property that is the subject of the agency, and thus the agency is created for
the agent's benefit instead of the principal's. Because the agent has an additional
interest in the property beyond the normal commission for selling it, the agent's
position cannot be terminated until the agent's interest ends.
apparent authority
Authority that is only apparent, not real. In agency law, a person may be deemed
to have had the power to act as an agent for another party if the other party's
manifestations to a third party led the third party to believe that an agency existed
when, in fact, it did not.
disclosed principal
A principal whose identity is known to a third party at the time the agent makes a
contract with the third party.
e-agent
A semiautonomous computer program that is capable of executing specific tasks.
equal dignity rule
In most states, a rule stating that express authority given to an agent must be in
writing if the contract to be made on behalf of the principal is required to be in
writing.
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Express authority
Authority expressly given by one party to another. In agency law, an agent has
express authority to act for a principal if both parties agree, orally or in writing,
that an agency relationship exists in which the agent had the power (authority) to
act in the place of, and on behalf of, the principal.
Implied authority
Authority that is created not by an explicit oral or written agreement but by
implication. In agency law, implied authority (of the agent) can be conferred by
custom, inferred from the position the agent occupies, or implied by virtue of
being reasonably necessary to carry out express authority.
notary public
A public official authorized to attest to the authenticity of signatures.
partially disclosed principal
A principal whose identity is unknown by a third person, but the third person
knows that the agent is or may be acting for a principal at the time the agent and
the third person form a contract.
power of attorney
A written document, which is usually notarized, authorizing another to act as
one's agent; can be special (permitting the agent to do specified acts only) or
general (permitting the agent to transact all business for the principal).
undisclosed principal
A principal whose identity is unknown by a third person, and the third person has
no knowledge that the agent is acting for a principal at the time the agent and the
third person form a contract
Davis contracts with Estee to buy a certain horse on her behalf. Estee asks Davis
not to reveal her identity. Davis makes a deal with Farmland Stables, the owner
of the horse, and makes a down payment. Estee does not pay the rest of the
price. Farmland Stables sues Davis for breach of contract. Can Davis hold Estee
liable for whatever damages he has to pay? Why or why not?
Yes. A principal has a duty to indemnify an agent for liabilities incurred because
of authorized and lawful acts and transactions and for losses suffered because of
the principal's failure to perform his or her duties.
Vivian, owner of Wonder Goods Company, employs Xena as an administrative
assistant. In Vivian's absence, and without authority, Xena represents herself as
Vivian and signs a promissory note in Vivian's name. In what circumstance is
Vivian liable on the note?
When a person enters into a contract on another's behalf without the authority to
do so, the other may be liable on the contract if he or she approves or affirms
that contract. In other words, the employer-principal would be liable for the note
in this problem on ratifying it. Whether the employer-principal ratifies the note or
not, the unauthorized agent is most likely also liable for it.
Sarah has to move from the East Coast to the West Coast for her job. Elmo
agrees to act as Sarah's agent to sell her New York condo. As her agent, Elmo
owes Sarah all of the following duties except
payment
Jim agrees to act on Joyce's behalf, subject to her control, and Joyce trusts Jim
to so act. They set out the terms in a written document, which they both sign.
This is
an agency by agreement
HomeBaked Bread Company hires Ike to sell the company's products in a certain
area. HomeBaked Bread agrees to pay Ike a salary, plus commission, for a trial
period. They also agree that Ike can sell using any methods and during any
hours that seem appropriate. The key factor in whether Ike is HomeBaked
Bread's employee is
the control HomeBaked Bread has over the details of the work
Dimitri, a certified public accountant and an investor, and Elinor, an insurance
salesperson and a realtor, may create an agency relationship for
an legal purpose
Roberta introduces Steve to her friends as "my associate." Steve purports to act
as Roberta's agent in several business transactions with those friends. If Roberta
is liable for Steve's actions, it will be because their relationship is
an agency by estoppel
Brenda, a salesperson at a Cabinets & Countertops store, tells D'Antoni, a
customer, "Buy your cabinets here, and I'll install them for half of what the store
would charge." D'Antoni buys the cabinets, which Brenda installs for half the
store's price. Brenda keeps the money. Brenda has breached
the agents duty of loyalty
Emmett, an agent for Fridley, signs an agreement with Glover on Fridley's behalf
but neglects to tell him that the agreement requires the payment of a certain tax.
The government prosecutes Fridley for failing to pay the tax. He is
liable, because notice to Emmett is notice to Fridley
Business Travelers Hotel Corporation hires Conagher, a real estate agent, to
locate hotel properties for the company. Conagher learns of a hotel available for
$3.2 million, informs Business Travelers, and makes an offer of $2.9 million on
Business Travelers's instruction. The offer is rejected. Conagher
complied with all of the agent's duties to the principal.
Spicy Wonder Hot Dog Vendors, Inc., grants its agent Teona an exclusive
territory in which to sell Spicy Wonder Hot Dog products. Spicy Wonder Hot Dog
cannot compete with Teona in that territory under the principal's duty of
cooperation
Emery is a corporate officer of Frakking Mining Corporation. Emery serves in a
representative capacity for Frakking's owners. With respect to binding Frakking
Mining to contracts, Emery is
an agent and has the authority
employment at will
A common law doctrine under which either party may terminate an employment
relationship at any time for any reason, unless a contract specifies otherwise.
wrongful discharge
An employer's termination of an employee's employment in violation of an
employment contract or laws that protect employees.
An executive employee is
one whose primary duty is management.
An employee's primary duty
is determined by what he or she does that is of principal value to the employer,
not by how much time the employee spends doing particular tasks.
The Worker Adjustment and Retraining Notification (WARN) Act
applies to employers with at least one hundred full-time employees. It requires an
employer to provide sixty days' notice before implementing a mass layoff or
closing a plant that employs more than fifty full-time workers. A mass layoff is a
layoff of at least one-third of the full-time employees at a particular job site.
Family and Medical Leave Act (FMLA)
to allow employees to take time off work for family or medical reasons.
Method of formation by agreement
The agency relationship is formed through express consent (oral or written) or
implied by conduct.
Method of formation by ratification
The principal either by act or by agreement ratifies the conduct of a person who
is not in fact an agent.
Method of formation by estoppel
The principal causes a third person to believe that another person is the
principal's agent, and the third person acts to his or her detriment in reasonable
reliance on that belief.
Method of formation by operation of law
The agency relationship is based on a social or legal duty (such as the need to
support family members) or formed in emergency situations when the agent is
unable to contact the principal and failure to act outside the scope of the agent's
authority would cause the principal substantial loss.
Notification
An agent is required to notify the principal of all matters that come to her or his
attention concerning the subject matter of the agency.
When a person who is not an agent makes a contract on behalf of a principal, the
principal cannot benefit from the contract
false
Generally, agency agreements must be in writing and there must be
consideration.
false
In agency law, ratification occurs when
a principal, by words or by actions, affirms a contract made by a person who in
fact is not an agent.
When the principal breaches a duty owed to the agent, an agent may
withhold further performance and demand an accounting.
If the agent engages in misrepresentation, negligence, deceit, liable, slander, or
trespass, what type of remedies does the principal have?
Tort
A principal who authorizes an agent to commit a tort may be liable to persons or
property injured because the act is considered to be the principal's.
True
Randy instructs his agent, Antonio, to threaten to beat up Martina if she refuses
to sell Randy a piece of artwork. Antonio follows his instructions but ends up
beating Martina when she refuses to sell the item. In this situation,
randy and Antonio are liable
All travel time of traveling salespersons and others whose jobs require travel is
normally NOT considered to be within the scope of employment.
false
The employer is charged with knowledge of any dangerous conditions
discovered by an employee and pertinent to the employment situation.
true
When Armani, an employee of a marketing firm, is going from her home to work,
she is normally considered to be acting
outside the scope of employment
An agency CANNOT be terminated by
the principals calling for an accounting
When a principal terminates an agency relationship, this act is called a
revocation
When an agent terminates the agency relationship, the act is called a
renunciation
Ian appoints Olga to handle his business affairs while he is away on vacation.
When Ian returns,
olga's agency automatically terminates
With an agency at will the principal who wishes to terminate must give the agent
reasonable notice
An agency coupled with an interest involves a situation in which the agent has
some legal right or interest in the property that is the subject of the agency
Who is required to inform any third parties who know of the existence of an
agency that has been terminated?
the principals
No. Nadine, as an agent, is prohibited from taking advantage of the agency
relationship to obtain property that the principal (Dimka Corporation) wants to
purchase. This is the duty of loyalty that arises with every agency relationship

Rulings by the bankruptcy courts can be appealed directly and immediately to the
United States Supreme Court.
False
In the Bankruptcy Code, the chapter that provides for corporate reorganization
proceedings is:
Chapter 11.
Which of the following are purposes of the bankruptcy laws?
Both of these
On May 1, Ace Credit Company loans Bob $10,000 and properly perfects a
security interest in the home entertainment center that Bob buys with the money.
Bob files for bankruptcy on May 12. With respect to this debt, Bob must file a
statement of intention that indicates whether he:
intends to redeem the collateral, reaffirm the debt, or surrender the goods.
Unlike a mechanic's lien, an artisan's lien is:
possessory.
A court's order, issued after a judgment has been entered against a debtor,
directing the sheriff to seize and sell any of the debtor's nonexempt real or
personal property is:
a writ of execution.
Andrea Law Firm (ALF) firm had spent hundreds of thousands in upfront
expenses on a potential class action suit which was ultimately denied by a court.
It could no longer pay those and other debts that combined totaled $2 million.
ALF neither owned nor managed real estate. ALF needed to reorganize the
debts in order to continue in operation. ALF developed a plan under Chapter 11
to reorganize the firm's debts. In that plan, ALF canceled a long-term lease
because it could no longer pay the rent due. Which of the following accurately
explains ALF's powers related to this lease?
As a debtor in possession, ALF can choose whether to cancel or assume
unexpired leases.
A mortgage contract must be in writing to be enforceable.
True
Filing a plan under Chapter 13 can be less expensive and less complicated than
filing under Chapter 7 or Chapter 11.
True
Cody is the sole proprietor of Diners Cafe, which owes debts in an amount more
than Cody believes he and Diners can repay. The creditors agree that liquidating
the business would not be in their best interests. To stay in business, Cody could
file for bankruptcy under:
Chapter 11 or 13.
In the Bankruptcy Code, the chapter that provides for liquidation proceedings is:
Chapter 7.
Gus owes support to his ex-wife Heidi, unpaid student loans to Intrastate
College, and fraudulently incurred debt to Jiffy Loan Company. Gus files a
petition for bankruptcy under Chapter 13 and is granted a discharge. Among the
debts that will not be discharged include the claims of:
Heidi, Intrastate, and Jiffy.
The rationale behind U.S. bankruptcy laws is to:
give debtors a fresh start and provide equitable treatment to creditors who are
competing for debtor assets.
One of the advantages of Chapter 13 repayment plans is that:
they are less expensive and less complicated than reorganization proceedings or
liquidation proceedings.
Chapter 13 of the Bankruptcy Code may be used by:
individuals.
Cindy Consumer, an individual, needs to file for relief under the federal
bankruptcy code. If she is a consumer-debtor, what additional obligations does
the Bankruptcy court clerk have?
To give Cindy information on the types of services available from credit
counseling agencies.
Chapter 12 of the Bankruptcy Code is aimed at helping which group?
Family farmers
Bond Corporation, a corporation with debts and liabilities in excess of $5 million,
filed a Chapter 11 reorganization plan in order to continue in operation. As part of
developing and administering the plan:
the creditors' committee may consult with the trustee or debtor concerning
administration of the case.
additional committees may be appointed to represent special interest creditors.
the creditors' committee must either consent to orders affecting the estate or
have the opportunity to present to the judge the committee's position.
Johnson had a stockbrokerage company and when the stock prices fell
dramatically he needed to reorganize his debts. Johnson can use Chapter 11 to
file his reorganization.
False
Fran Farmer has $250,000 in farm debt. To be considered a family farmer for
purposes of Chapter 12 bankruptcy, what percentage must $250,000 be of her
overall debt?
Fran's liabilities must be a minimum of 50 percent farm related
Smith operates an accounting services firm. The firm lost its primary long-term
client and must file a Chapter 11 to reorganize its debts. Smith's business
liabilities are less than $1million and Smith does not own real estate. Smith can
be a debtor in possession and does not have to appoint a creditors' committee.
True
Normally, in order to receive a portion of a debtor's estate, what must each
creditor file?
A proof of claim
The chapter of the Bankruptcy Code that provides for the "Adjustment of Debts of
an Individual with Regular Income" is:
Chapter 13.
Jasmine, a recent college graduate, wants to buy her first home. Her income is
relatively low now, although it's enough to qualify for a mortgage. However, her
projected yearly income is expected to increase as she moves up the corporate
ladder. Which type of mortgage would best correlate with her rise in income?
An adjustable rate mortgage
A provision of the Bankruptcy Code that allows a court to confirm a debtor's
Chapter 11 reorganization plan, even though only one class of creditors has
accepted it, is called a:
cram-down provision.
Samuel has fallen seriously behind in his debts, including his child-support
payments due Rebecca, his former wife, for their son, Nathan. If Samuel files for
Chapter 7 bankruptcy, his debt for the support of Nathan:
will not be discharged due to laws governing exceptions to discharge.
The sale of all of the nonexempt assets of a debtor and the distribution of the
proceeds to the debtor's creditors is known as:
liquidation.
A Chapter 7 bankruptcy proceeding is commenced by the:
filing of a petition in bankruptcy.
The type of bankruptcy proceeding used most commonly by corporations is a
reorganization under:
Chapter 11.
The Bankruptcy Code's Chapter 12 is intended to aid charitable institutions.
False
Sammy loaned Andrea $500 and wishes to perfect a security interest in Andrea's
computer and printer. Which of the following actions by Sammy will result in a
perfected security interest in Andrea's computer and printer?
Sammy takes possession of the computer and printer.
The homestead exemption has been abolished under the Bankruptcy Code.
False
Quinn borrows $3,000 in the form of unsecured cash advances on a Reliable
Corporation credit card. Quinn later borrows $5,000 from Stable Loan Company,
which properly perfects its security interest in the camping trailer Quinn buys with
the $5,000. When Quinn files a Chapter 7 petition in bankruptcy, between these
lenders:
Stable has priority to payment.
Which of the following is not a requirement for a secured party to have an
enforceable security interest in the debtor's collateral?
The debtor must sign and file the financing statement which reasonably
describes the collateral.
In the Bankruptcy Code, the chapter that provides for liquidation proceedings is:
Chapter 7.
Natural Resources, Inc. (NRI), files for bankruptcy under Chapter 11 and
assumes the role of a debtor in possession. In this role, NRI is similar to a:
trustee in a liquidation proceeding under Chapter 7.
Fannie Farmer, a farmer, needs to file for relief under the federal bankruptcy
code. Under which of the following chapters would she file?
Chapter 12
Jill believes that she should file a plan for a Chapter 13 discharge in bankruptcy.
A Chapter 13 bankruptcy plan must provide for:
the surrender of all collateral to the creditors.
Debts based on fraud may be discharged under Chapter 13.
False
If a creditor willfully violates an automatic stay in a bankruptcy proceeding, an
injured party is entitled to damages.
True
Mary has a security interest in a black velvet painting that Paolo owns, so she
takes the painting and stores it in her garage. Mary:
has a security interest that is perfected.
What are the two goals of bankruptcy law in the United States?
To give debtors a fresh start and to provide equitable treatment to creditors
competing for debtor assets
Before obtaining a discharge in bankruptcy, a consumer-debtor must attend a
consumer education course.
True
An agreement between a debtor and a creditor in which the debtor voluntarily
agrees to pay a debt dischargeable in bankruptcy is called a:
reaffirmation agreement.
Delta Finance Company obtains a judgment against Evan for a debt and wishes
the sheriff to seize and sell Evan's property. Delta must return to the court that
issued the judgment and obtain a writ of:
execution.
In Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in
possession of the business and to continue business operations is a:
debtor in possession.
Cindy Consumer, an individual, needs to file for relief under the federal
bankruptcy code. She would like to start over, pay off what debts she can and
discharge the remaining debts. Under which of the following chapters should she
file?
Chapter 7
If, within a certain time after a discharge, it is discovered that a debtor concealed
property to defraud a creditor, the discharge may be revoked.
True
In which of the following scenarios would Julia be a buyer in order course of
business whose purchase would be free and clear of the business debtor's
perfected security interest?
Julia purchases a dress from a retail store that sells clothing.
In order to create a security interest, the secured party must give something of
value to the debtor.
True
Andrea Law Firm (ALF) firm had spent hundreds of thousands in upfront
expenses on a potential class action suit which was ultimately denied by a court.
It could no longer pay those and other debts that combined totaled $2 million.
ALF neither owned nor managed real estate. ALF needed to reorganize the
debts in order to continue in operation. ALF developed a plan under Chapter 11
to reorganize the firm's debts. What must be included in the reorganization plan?
Designation of classes of claims and interests
Specification of treatment to be afforded the classes
Plan for payment of tax claims over a five year period
A Chapter 11 plan is binding on confirmation and the debtor is discharged.
False
John had filed for Chapter 7 bankruptcy after transferring a vacation home he
owned to his brother, so that he would not have to list it as an asset in the
bankruptcy proceeding, with the understanding that after the bankruptcy was
completed, his brother would transfer the property back to him. If John's creditors
learn of this scheme, they will most likely file:
an objection to discharge.
A debtor must be insolvent to file a petition for bankruptcy.
False
Bankruptcy law has one goal—to encourage the continued use of credit.
False
Bond Corporation, a corporation with debts and liabilities in excess of $5 million,
filed a Chapter 11 reorganization plan in order to continue in operation. It is likely
Bond will have a difficult time finding investors after the filing.
True
Pola files a petition in bankruptcy. Pola's non-dischargeable debts include:
domestic-support obligations.
Beta Software Corporation is a new company that needs to borrow money to
meet its payroll. Carl, president and owner of Beta, asks First National Bank to
loan Beta the funds. If First National insists that Carl sign the loan application,
making himself personally liable for payment whether or not Beta defaults, Carl
will be:
a surety only.
John Patrick Goulding filed for Chapter 7 bankruptcy relief. In his schedules, he
listed assets of $62,000 and debts of over $670,000. Two banks were the largest
creditors. The banks and the trustee learned that Goulding was the beneficiary of
three irrevocable spendthrift trusts. These funds were set up to pay Goulding a
monthly income of $12,000, but Goulding could not access the principal in the
trusts. The trust funds could not be reached by Goulding's creditors. In addition,
Goulding would be receiving a payment of $200,000 from one of the trusts in six
months. The bankruptcy court most likely held that the amount included in the
property of Goulding's estate was:
$272,000, the total amount he would receive from the trusts within 180 days (six
months) after filing.
Suha performs a contract with Tyler to add a second story addition to Tyler's
house, but Tyler does not pay. In most states, Suha can create a lien and place it
on Tyler's property by filing:
a written notice of lien.
Cindy Consumer, an individual, needs to file for relief under the federal
bankruptcy code. She earns a regular income and would like to set up a plan to
repay her debts. Under which of the following chapters should she file?
Chapter 13
Among those eligible for a Chapter 13 repayment plan are:
people who live on fixed pensions.
Fred Currey purchased cattle from Itano Farms, Inc. As payment, Currey gave
Itano Farms worthless checks totaling $50,250. Currey was later criminally
convicted for passing bad checks and ordered to pay Itano Farms restitution of
$50,250. Four months later, Currey and his wife filed for Chapter 7 bankruptcy
protection. During the ninety days prior to the filing of the petition, Currey made
three restitution payments to Itano totaling $14,821. The Curreys sought to
recover these payments as preferences. The court most likely held that the
payments were:
preferences, because Itano was a creditor and the payments were made within
ninety days prior to the date of filing.
On July 1, Excel Holidays, Inc., a travel agency, files a Chapter 7 petition in
bankruptcy. Among Excel's debtors are Fran who deposited $2,000 on June 1 to
prepay a vacation trip and Gwen, Excel's employee, who is owed sixty days' pay.
Between Fran and Gwen:
Gwen has priority to payment.
Adam Mith and Kenneth Galbrit have security interests in the same collateral
owned by John Debtor. Mith's security interest attached in March 2014. Galbrit's
security interest attached and was properly perfected in April 2014. Who would
be entitled to the collateral if John Debtor defaults on both loans?
Kenneth Galbrit
Andrea Law Firm (ALF) firm had spent hundreds of thousands in upfront
expenses on a potential class action suit which was ultimately denied by a court.
It could no longer pay those and other debts that combined totaled $2 million.
ALF neither owned nor managed real estate. ALF needed to reorganize the
debts in order to continue in operation. ALF developed a plan under Chapter 11
to reorganize the firm's debts. As to this plan,:
a court may confirm it even if only one class of creditors have accepted it if the
plan is fair and equitable.
James Bland filed a Chapter 13 to pay individual unsecured debts of $150,000.
His plan of rehabilitation by repayment must provide for:
the turning over to the trustee of such future earnings or income of the debtor as
is necessary for execution of the plan.
full payment through deferred cash payments of all claims entitled to priority.
identical treatment of all claims within a particular class.
In Chapter 11 bankruptcy, a reorganization plan is established to conserve and
administer the debtor's assets in the hope that the business can eventually:
return to successful operation and solvency.
In bankruptcy proceedings, all of the debtor's interests in property currently held,
wherever located, together with certain jointly owned property, property
transferred in transactions voidable by the trustee, proceeds and profits from the
property of the estate, and certain property interests to which the debtor
becomes entitled within 180 days after filing for bankruptcy is called:
estate in bankruptcy.
David had a 25 year mortgage contract with Lenders Bank. He failed to make the
mortgage payments. Which of the following options has Lender Bank chosen to
avoid foreclosure if Lender postpones part or all of the payments on the loan for
a limited time?
Forbearance
Samuel and Rebecca divorced, and the court ordered that Samuel pay a certain
sum in child support each month to Rebecca for the support of their son, Nathan.
Samuel fell behind in his payments. In order to ensure that money would be
coming in regularly to Rebecca and Nathan, the judge entered an order directing
Samuel's employer to pay a certain portion of his wages to Rebecca and Nathan.
This kind of court order is known as:
a garnishment.
When a debtor files a petition under Chapter 11 of the Bankruptcy Code, an
automatic stay exists.
True
Which of the following is an accurate statement about the source of bankruptcy
law?
Bankruptcy relief is provided under federal law. State laws on secured
transactions also affect the bankruptcy law.
A corporate debtor must be "out of business" before it can file a bankruptcy
petition for reorganization under Chapter 11.
False
A Chapter 13 plan can be initiated only by creditors filing of an involuntary
petition.
False
Jack files a bankruptcy petition under Chapter 7. Among his debts are support
owed to his ex-wife Kayla, overdue state income taxes, unpaid local traffic fines,
and amounts representing student loans owed to Loyal University. The debts
most likely to be discharged if their payment imposes undue hardship on Jack
include the claims for:
student loans.
The relationship begins when the customer opens a checking account and deposits
funds that the bank will use to pay for checks written by the customer. Three types
of relationships are established at this time between the bank and customer:
Creditor-debtor relationship
Agency relationship
Contractual relationship

Monica Geller draws a check "pay to the order of Rachel Green" and delivers the
check to Rachel. Rachel indorses the check in blank by writing her signature on
the back of the check.
Rachel's signature is an example of which of the following?
a blank indorsement
A(n)____________is an indorsement that includes the notation "without
recourse" or similar language that disclaims liability of the indorser.
qualified indorsement
Carmen Sandello receives her paycheck from her employer. She indorses the
back of the check "For deposit only" and signs her name under these words.
Carmen deposits the check at an ATM of her bank.
Carmen's indorsement is which of the following?
an indorsement for deposit or collection
After Rachel Green receives a check from Monica Geller, Rachel indorses her
check and then writes "pay to Phoebe Buffay" above her signature.
Rachel's signature and instructions are an example of which of the following?
a special indorsement
A person who is in possession of a negotiable instrument that is drawn, issued,
or indorsed to him or to his order, or to bearer, or in blank is called
a(n)___________.
Holder
An indorsement that states that it is for the benefit or use of the indorser or
another person is called a(n)______________.
indorsement in trust
A(n)___________is an indorsement whereby the indorser promises to pay the
holder or any subsequent indorser the amount of the instrument if the maker,
drawer, or acceptor defaults on it.
unqualified indorsement
The transfer of a negotiable instrument by a person other than the issuer to a
person who thereby becomes a holder is called_____________.
negotiation
A holder who does not qualify as a holder in due course in his or her own right
becomes a holder in due course if he or she acquires the instrument through a
holder in due course under which of the following?
the shelter principle
Jay Delta receives a weekly payroll check from his employer, First Corporation,
made "payable to the order of Jay Delta." Jay takes the check to a local store,
signs his name on the back of the check, gives the check to the cashier, and
receives cash for the check. Jay has negotiated the check to the store.
Jay's check is an example of which of the following?
an order instrument
Lindsey executes a note payable to Greta for $3,000 for goods she purchased
from her. Greta then transfers the note to Amy, who pays $2,500 for the note.
Because Amy has paid for the negotiable instrument, she therefore meets which
of the following qualifications for HDC status?
the taking for value requirement
The transfer of rights under a nonnegotiable contract is called _____________.
assignment
Insure You, an insurance company, is paying a claim. They make out a check
payable to the order of the attorney representing the payee. The attorney
indorses the check to his client (the payee) with the notation "without recourse."
This notation ensures that the attorney is not liable as an indorser if the
insurance company fails to pay the check.
The attorney in this scenario is which of the following?
a qualified indorser
Dharamjit lent Jessica $1,500 to help her with moving expenses. In order to pay
him back, Jessica draws from her checking account a $1,500 check made out to
"pay to cash" and gives it to Dharamjit.
Jessica's check is an example of which of the following?
a bearer instrument
The signature (and other directions) written by or on behalf of the holder
somewhere on an instrument is called _____________
an indorsement
To qualify as a(n) ___________ , the person must be the holder of a negotiable
instrument that was taken (1) for value; (2) in good faith; (3) without notice that it
is overdue, dishonored, or encumbered in any way; and (4) bearing no apparent
evidence of forgery, alterations, or irregularity.
holder in due course (HDC)
An indorsement that contains some sort of instruction from the indorser is called
a(n) ________ indorsement.
restrictive
An instrument that is presented for payment and payment is refused is called
a(n) ____________.
dishonored instrument
A separate piece of paper attached to an instrument on which an indorsement is
written is called ______________.
an allonge
Suppose a promissory note is due April 15, 2030. To qualify as an HDC, a
purchaser must acquire the note by 11:59 p.m. April 15, 2030. A purchaser who
acquires the note on April 16, 2030, or thereafter, is only a holder and not an
HDC.
This promissory note is an example of which of the following?
a time instrument
A check has the following indorsement: "Pay to Fred Weasley or George
Weasley."
Here, either Fred or George Welby can individually indorse and negotiate the
instrument without the other's signature because this indorsement
is__________ .
payable in the alternative
Robin draws a check payable to the order of Ted. Ted indorses the check and
negotiates it to Marshall. When Marshall presents the check for payment, he
discovers that there are insufficient funds in Robin's account to pay the check.
Because Ted is a(n)_____________, he is liable on the check.
unqualified indorser
An indorsement that has no instructions or conditions attached to the payment of
the funds is called a ____________ indorsement.
nonrestrictive
A check has the following indorsement: "Pay to Fred Welby or George Welby."
Here, either Fred or George Welby can individually indorse and negotiate the
instrument without the other's signature because this indorsement is
_____________ .
payable in the alternative
Negotiation is the transfer of a negotiable instrument by a person other than the
_____.
issuer
Which of the following is an INCORRECT statement regarding the transfer of a
negotiable instrument by negotiation?
According to the Uniform Commercial Code (UCC), the holder of a negotiable
instrument cannot enjoy the same rights as the transferor.
Suppose that Sam Bennett receives a weekly payroll check from his employer,
Ace Corporation, made "payable to the order of Sam Bennett." Sam takes the
check to a local store, signs his name on the back of the check, gives the check
to the cashier, and receives cash for the check. Which of the following is correct
in terms of negotiation of the check?
The check has been properly negotiated.
An instrument that is not payable to a specific payee or indorsee is _____ paper.
bearer
Suppose that Harold Green draws a check "pay to the order of Victoria Rudd"
and delivers the check to Victoria. Victoria indorses the check in blank by writing
her signature "Victoria Rudd" on the back of the check. Victoria's signature is a
_____ indorsement.
Blank
A _____ indorsement would be created if Betsy McKenny indorsed her check
and then wrote "pay to Dan Jones" above her signature.
special
A(n) _____ is a person who is in possession of a negotiable instrument that is
drawn, issued, or indorsed to him or to his order, or to bearer, or in blank.
holder
A holder in due course is a holder who takes a negotiable instrument for value, in
good faith, and without notice that it is _________.
defective or overdue
Ted draws a check "payable to the order of Mary Smith" and delivers the check
to Mary. Mary indorses it and gives it as a gift to her daughter. Which of the
following is a correct statement regarding whether Mary's daughter can qualify as
a holder in due course (HDC)?
Mary's daughter cannot qualify as an HDC because she has not given value for
it. In order to become a holder in due course, the holder must pay something of
value for the instrument.
Suppose that a thief steals a negotiable instrument and transfers it to Harry.
Harry does not know that the instrument is stolen. Harry meets the _____ test
and can therefore qualify as a holder in due course (HDC).
good faith

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Ali Alyami133

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Student Support Services (COVID) Tutoring Courses Library Community Content Collection
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1. Business Law II (WA FA20) 

 
2. Learning Content
 
3. Week 8-Midterm Exam
 
4. Review Test Submission: Midterm Exam Chapters 13-19

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Business Law II (WA FA20)
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Review Test Submission: Midterm Exam Chapters 13-19
 
User Ali Mofareh Alyami
Course Business Law II (WA FA20)
Test Midterm Exam Chapters 13-19
Started 10/20/20 3:11 PM
Submitted 10/20/20 4:31 PM
Status Needs Grading
Attempt Score Grade not available.  
Time Elapsed 1 hour, 19 minutes out of 2 hours
Instructions Please read each question carefully.  This exam is open book/open notes.  You must take
this exam at one sitting.  You have 2 hours to complete it.  The exam is due on
Sunday, October 25th at 11:30p.m.

Results All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered
Displayed Questions
 Question 1
2 out of 2 points
A blank indorsement specifies no particular indorsee.

Selected Answer:
True
Answers:
True
False
 Question 2
2 out of 2 points
Corporations are obligated to return a principal amount per share to each holder of
common stock.
Selected Answer:
False
Answers: True

False
 Question 3
 2 out of 2 points
Moe, the owner of National Sales Company, stores blank National checks in an
unlocked office drawer. Owen, an employee, forges Moe's signature on one of the
blank checks and indorses it to Payday Loans, Inc. With respect to Payday, Moe:
Selected Answer: c. 
may be liable if the storage of the checks facilitated the forgery
Answers: a. 
is definitely liable
b. 
may be liable if the forgery is not obvious
c. 
may be liable if the storage of the checks facilitated the forgery
d. 
is definitely not liable
 Question 4
0 out of 2 points

If foreclosure of a home does not give the creditor the full amount of the loan, the debtor is not
responsible for paying the remaining amount left on the loan.

Selected Answer:
True
Answers: True

False
 Question 5
Needs Grading

Jill introduces Kelly to her friends as my associate. Kelly purports to act as Jill’s agent in several
business transactions with those friends. Is Jill liable for Kelly’s business transactions? Explain.

Selected If Jill is liable for Kelly's actions, it will be under the doctrine of estoppel. This is
Answer: because it seems to be a case where agency is formed by estoppel. This is because
he introduced Kelly as his associate.

Correct [None]
Answer:
Response [None Given]
Feedback:
 Question 6
2 out of 2 points
Once formed, a corporation cannot be dissolved involuntarily.
Selected Answer:
False
 Answers: True

False
 Question 7
2 out of 2 points
An oral promise that an employer makes to employees regarding discharge policy
may be considered part of an implied contract
Selected Answer:
True
Answers:
True
False
 Question 8
2 out of 2 points
A check is a draft.

Selected Answer:
True
Answers:
True
False
 Question 9
2 out of 2 points
Even after an agency relationship has terminated, there are circumstances under
which a principal may be bound by his or her agent's act.
Selected Answer:
True
Answers:
True
False
 Question 10
2 out of 2 points
Like the termination of a partnership, the termination of a corporate life has two
phases:
Selected Answer: c. 
dissolution and winding up
Answers: a. 
consolidation and termination
b. 
resolution and dissolution
c. 
dissolution and winding up
d. 
acceptance and winding up
 Question 11
2 out of 2 points
 A franchisor may be liable for the act of a franchisee's employee.
Selected Answer:
True
Answers:
True
False
 Question 12
2 out of 2 points
Which of the following does NOT terminate an agency?
Selected Answer: c. 
The principal calls for an accounting
Answers: a. 
Death of the principal
b. 
Impossibility
c. 
The principal calls for an accounting
d. 
War
 Question 13
0 out of 2 points

A debtor seeking to purchase a home with a bank loan is a mortgagee.

Selected Answer:
True
Answers: True

False
 Question 14
2 out of 2 points
A bank is never liable for failing to honor a customer's stop payment order.

Selected Answer:
False
Answers: True

False
 Question 15
2 out of 2 points
Jack receives a check from Kappa Company and indorses it "without recourse." This
indorsement is:
Selected Answer: d. 
a qualified indorsement
 Answers: a. 
a blank indorsement
b. 
a restrictive indorsement
c. 
a special indorsement
d. 
a qualified indorsement
 Question 16
2 out of 2 points
There are no exceptions to the employment-at-will doctrine
Selected Answer:
False
Answers: True

False
 Question 17
2 out of 2 points
A bank's duty to honor its customers checks is absolute.

Selected Answer:
False
Answers: True

False
 Question 18
2 out of 2 points

     Eve possesses an instrument that is payable to bearer. She loses it. Fred finds it. On this
instrument, Fred may:

Selected Answer: a. 

collect payment
Answers: a. 
collect payment
b. 
not collect payment because he did not give value for it
c. 
not collect payment because he found it
d. 
not collect payment because he is not the bearer
 Question 19
2 out of 2 points
In the Bankruptcy Code, the chapter that provides for liquidation proceedings is:
Selected Answer: c. 
Chapter 7
Answers: a. 
Chapter 11
b. 
Chapter 13
c. 
Chapter 7
d. 
Chapter 9
 Question 20
2 out of 2 points
Ewa signs an instrument unconditionally promising to pay to "First State Bank"
$5,000 with interest in installments with the final payment due June 1, 2021. The
instrument that Ewa signed is most likely:
Selected Answer: d. 
a promissory note
Answers: a. 
an order to pay
b. 
a certificate of deposit
c. 
a draft
d. 
a promissory note
 Question 21
2 out of 2 points
A corporation has no implied powers.
Selected Answer:
False
Answers: True

False
 Question 22
2 out of 2 points
Fannie Farmer, a farmer, needs to file for relief under the federal bankruptcy code.
Under which of the following chapters would she file?
Selected Answer: a. 
Chapter 12
Answers: a. 
Chapter 12
 b. 
Chapter 13
c. 
Chapter 11
d. 
Chapter 7
 Question 23
2 out of 2 points
An agency relationship is a fiduciary relationship.
Selected Answer:
True
Answers:
True
False
 Question 24
2 out of 2 points
If a creditor willfully violates an automatic stay in bankruptcy proceedings, then the injured party
is entitled to damages.

Selected Answer:
True
Answers:
True
False
 Question 25
2 out of 2 points
A stale check is a check that has been outstanding for longer than one month. 

Selected Answer:
False
Answers: True

False
 Question 26
2 out of 2 points
In a sole proprietorship, the owner receives all of the risk
Selected Answer:
True
Answers:
True
False
 Question 27
2 out of 2 points
An indorsement that specifies no particular indorsee and can consist of a mere
signature is called:
Selected Answer: c. 
 a blank indorsement
Answers: a. 
 a restrictive indorsement
b. 
a qualified indorsement
c. 
a blank indorsement
d. 
a narrow indorsement
 Question 28
0 out of 2 points
A party whose name is misspelled on a check cannot indorse the check.

Selected Answer:
True
Answers: True

False
 Question 29
2 out of 2 points
A general partner cannot participate in the management of a limited partnership.
Selected Answer:
False
Answers: True

False
 Question 30
2 out of 2 points

The bank-customer relationship begins when a customer opens a bank account.

Selected Answer:
True
Answers:
True
False
 Question 31
2 out of 2 points

To be negotiable, an instrument must be in writing.

Selected Answer:
True
 Answers:
True
False
 Question 32
2 out of 2 points
A power of attorney can be given only by an actual attorney
Selected Answer:
False
Answers: True

False
 Question 33
0 out of 2 points
All unemployed workers are eligible for unemployment compensation.
Selected Answer:
False
Answers:
True
False
 Question 34
2 out of 2 points
Samantha wrote a check to pay for a DVD player she purchased at an electronics
store. However, when she got it home, she discovered that it would not play Blu-Ray
DVDs, which was the kind she asked for. Immediately, she called her bank and
ordered a(n):
Selected Answer: a. 
stop-payment order
Answers: a. 
stop-payment order
b. 
due -course payment order
c. 
overdraft order
d. 
stale check order
 Question 35
2 out of 2 points
The Age Discrimination in Employment Act prohibits employment discrimination
against:
Selected Answer: a. 
those over the age of 40
Answers: a. 
those over the age of 40
b. 
those over the age of 55
 c. 
those over the age of 70
d. 
those under the age of 71
 Question 36
0 out of 2 points
The bank on which the check is drawn is the drawer bank.

Selected Answer:
False
Answers:
True
False
 Question 37
Needs Grading
By herself, Gemma opened a sandwich shop. She was sued when a diner got food
poisoning. Now, all of Gemma’s assets, including her house, are at risk to pay a
judgment against her. 
1.  Explain what type of business ownership Gemma has.  
2.  Explain the type of business ownership that would  protect Gemma from personal
liability.
Selected The Gamma has sole proprietorship because he seems to have unlimited liability
Answer: and that is why all of her assets, including her house are at risk to pay a judgment
against her. 
A private limited company (single-member company) would have protected her
from personal liability.
Correct [None]
Answer:
Response [None Given]
Feedback:
 Question 38
2 out of 2 points
A customer who fails to examine a bank statement and report a forged signature may be liable for
later forgeries by the same wrongdoer.

Selected Answer:
True
Answers:
True
False
 Question 39
2 out of 2 points
Jon is about to travel to Turkey to visit a former classmate who studied in the U.S. at
the university where Jon studied. To have money on the trip which is protected from
theft, Jon purchases traveler's checks at the bank, and signs them while the teller
watches. Jon will have to sign them again at the time they are:
Selected Answer: b. 
used 
 Answers: a. 
paid
b. 
used 
c. 
offered
d. 
completed
 Question 40
2 out of 2 points
Bankruptcy law has one goal—to encourage the continued use of credit.
Selected Answer:
False
Answers: True

False
 Question 41
0 out of 2 points

A promissory note is negotiable even if it does not state that it is payable on demand or at a
definite time.

Selected Answer:
False
Answers:
True
False
 Question 42
2 out of 2 points
Apparent authority exists if a principal causes a third party to believe reasonably that
an agent has authority to act.
Selected Answer:
True
Answers:
True
False
 Question 43
Needs Grading
Dimka Corporation wants to build a new mall on a specific tract of
land. Dimka contracts with Nadine to act as its agent in buying the
property. When Nadine learns of the difference between the price
that Dimka is willing to pay and the price at which the owner is
willing to sell, she wants to buy the land and sell it to Dimka herself.
Can she do this? Explain.
 Selected No. Nadine, as an agent, is prohibited from taking advantage of the agency
Answer: relationship to obtain property that the principal (Dimka Corporation) wants to
purchase. This is the duty of loyalty that arises with every agency relationship

Correct [None]
Answer:
Response [None Given]
Feedback:
 Question 44
2 out of 2 points
If, within a certain time after a discharge, it is discovered that a debtor concealed
property to defraud a creditor, the discharge may be revoked
Selected Answer:
True
Answers:
True
False
 Question 45
2 out of 2 points
A shareholder is not an “owner” of a corporation.
Selected Answer:
False
Answers: True

False
 Question 46
Needs Grading

1. Matt draws a check on PNC Bank, his bank in New York. The check is made
payable to Digital Computers, Inc. of San Francisco, CA. Digital Computers Inc.,
deposits the check in their account at First National Bank, in San Francisco, CA. First
National Bank sends the check to Big Bank in San Francisco for collection. Big Bank in
San Francisco sends the check to PNC Bank for collection.
Identify the following:
2. Depository Bank
1. Intermediary Bank
1. Collecting Bank
1. Payer Bank

Selected Answer: 1. Depository Bank-   First

National Bank
2. Intermediary Bank  Big Bank
3. Collecting Bank  First National
Bank  
4. Payer Bank- - PNC Bank 

Correct Answer: [None]

Response Feedback: [None Given]
2. Question 47
Needs Grading

Explain the roles that exist within the bank-customer relationships.

Selected The relationship begins when the customer opens a checking account and deposits
Answer: funds that the bank will use to pay for checks written by the customer. Three types
of relationships are established at this time between the bank and customer:
Creditor-debtor relationship
Agency relationship
Contractual relationship
Correct [None]
Answer:
Response [None Given]
Feedback:
3. Question 48
0 out of 2 points

 Sam Bennett received a weekly payroll check from his

employer, Ace Corporation, made "payable to the order of Sam Bennett." Sam takes the check to
a
local store, signs his name on the back of the check, gives the check to the cashier, and receives
cash for the check. Which of the following is correct in

terms of negotiation of the check?

Selected d. 
Answer: the check is non-negotiable
Answers: a. 
indorsement, but delivery has not occurred, therefore the check is non-
negotiable
b. 
delivery, but no indorsement has occurred, therefore the check is non-
negotiable
c. 
the check is negotiable
d. 
the check is non-negotiable
4. Question 49
0 out of 2 points
A check drawn by a bank on itself is referred to as a:
Selected Answer: b. 
a cashier's check
Answers: a. 
a traveler's check
 b. 
a cashier's check
c. 
a certified check
d. 
a check
5. Question 50
2 out of 2 points
One of the key advantages of the corporate form of business is:
Selected Answer: c. 
the limited liability of sharehholders
Answers: a. 
the unlimited liability of shareholders
b. 
the double taxation of the corporate firm
c. 
the limited liability of sharehholders
d. 
that no formalities are required to create a corporation
Tuesday, October 20, 2020 4:31:12 PM EDT
 OK